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8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 18
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About
Best of
Estimize
Disclaimer
The Hedge Fund Structure Is Dead
Posted by Leigh Drogen
on November 1st 2010
This post is for those of you out there looking to start your own firms and manage money for others The hedge
fund structure is still necessary for those who trade complex strategies using derivatives or illiquid assets But formost of us the stock forex and futures traders who go long and short the underlying the hedge fund structure is
obsolete and Irsquom declaring its death
Advances in technology which in hindsight really werenrsquot that difficult allow investment managers to trade
multiple separate accounts across the same strategy at the same exact time The main draw of the hedge fund
structure previously was the ability for the manager to trade one account from one screen The limited
partnership legal structure sucks plain and simple itrsquos expensive to set up requires many headaches along the
way when adding and subtracting clients and adversely effects the other partners when someone pulls money ou
or puts money in Whoever thought that commingling funds was a good idea in the first place needs to be (fill in
ruthless torture scenario here) It has caused a great deal of pain for many investors whorsquove had their funds
outright stolen by the general partner had gates thrown down on the removal of their assets from the partnership
and everything bad in between As I said above the limited partnership structure serves a purpose when dealing
with illiquid assets that are hard to buy and keep track of across different accounts save for that it serves zero
purpose these days
Only a few years ago when I was a traderanalyst for an investment management firm up in White Plains NY
named Geller Capital Management we used two different structures There was a fund and there were separate
accounts The fund was an archaic vehicle held over from a previous firm my boss ran The strategy had
changed but the structure was still there and it was useful to some extent But the majority of the money we
managed was in separate accounts We ran accounts as small as $100000 and as big as $12000000 They
were all treated the same way But at the time the technology did not allow us to trade those accounts as easily
as I can today Staff was needed to allocate the correct amount of shares across the accounts Portfolio
tracking software (Advent) was needed to determine if those shares had been allocated correctly it was time
consuming and expensive
At the end of the day the allocating shares system works it just doesnrsquot work well if you run a one or two man
shop So if you were trying to start your own firm this just isnrsquot the way to go it was hedge fund structure or
nothing
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 28
But not anymore Now the following may sound like an advertisement for Interactive Brokers but I can assure
you I am in no way shape or form affiliated with that company In fact I have plenty of gripes with them they
are without a doubt the worst institutional and retail brokerage in terms of customer service they really just
couldnrsquot give a crap Thatrsquos ok itrsquos their business model they have decided to put their money towards
technology and not service opposite of Schwab
I would not have been able to set up my firm a few years ago if it were not for the technology on the IB Trader
Workstation platform Because of them I donrsquot need a back office and I sure as hell donrsquot need a hedge fund
structure If you are looking to set up your own firm here is a very simple way to do it that will save you a ton o
hassle a ton of money and a ton of time and you lose absolutely nothing
Surfview Capital is an LLC very simple It cost me a couple hundred dollars to set up and a few weeks I
didnrsquot need an expensive lawyer to draw up partnership documents and I sure as hell donrsquot need one going
forward
I set up an institutional account at Interactive Brokers under my LLC very simple They ask you a minimal
amount of questions and donrsquot require much in the way of forms and you have an institutional account open
The next step is not necessary but I feel that it is a good show of faith in yourself to your clients or prospective
clients When you set up your institutional master account Interactive Brokers will ask you if you would like to
open up a sub trading account for your LLC Do it and run the money in there the exact same way you are
running money for your clients This shows that you are willing to put your firmrsquos own money on the line along
side you clientrsquos in the same strategy whatrsquos good for them is not only now good for you in terms of fees it is
directly going to impact your firm in terms of PampL on your own account This goes a long way to showing that
you truly believe in yourself even beyond past performance
Next you need an investment management agreement for your firm This document takes some time to put
together and needs to be done by a lawyer The document itself is pretty simple and many investment managersuse the same one with a few little tweaks My advice if you want to be cheap about it find one online from
another firm that trades the same assets as you and modify it Then take it to the lawyer and have them look it
over to make sure its kosher Otherwise have the lawyer just write it up yoursquore going to pay for it but getting
this right is important This is the agreement between you and the client that lays out everything that isnrsquot said in
the Interactive Brokers managed account sign up process The truth is that you donrsquot need this document
legally But to be safe and cover yourself in case of a dispute in reality you need it I would share mine here
but something tells me thatrsquos just not the right thing to do and it could be illegal I donrsquot know
Bringing clients into your firm is not a difficult process when you set up the structure the way I have Herersquos how
it works Someone contacts me either through the web site the blog Twitter a friend of a friend a friend of aclient or however else they might find Surfview Capital We have a few conversations I ask them an extensive
list of questions they ask me any questions they have and if we both feel like therersquos a mutual fit I send them the
investment management agreement We review it together they sign it and send it back to me I then go into my
Interactive Brokers platform and send them an invitation to open a brokerage account This account is their
own it is not under your LLC you donrsquot have any access to the funds in the account you can not move money
in and out you have no power of attorney over the account it is theirs just as it would be had they signed up
without you The invitation to open the brokerage account comes with another electronic sheet (this is all
electronic by the way there is no actual paper required itrsquos amazing) the second set of forms gives you the
permission to trade the account and it lays out how you will bill the client You can choose from several
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 38
different ways I wonrsquot cover that here you will figure it out when you get in there and look around but basically
itrsquos all automated and thatrsquos awesome
The client fills out the forms online and opens the account Their account is now under your master account you
have access to trade it and the fees are automatically taken out there is no billing or invoicing no back office no
computing stuff itrsquos all done automatically amazing You need to take the time to do a back of the napkin
review at the end of each quarter to make sure that something huge didnrsquot go wrong some form wasnrsquot
incorrectly filled out and wayyyy too much or too little was charged but I havenrsquot run into an issue yet Just be
diligent and look for obvious errors
The client then funds the account and thatrsquos about it for the signup process You never touch a dollar of theirs
ever The only paperwork you handle is sending them the investment management agreement And thatrsquos it for
the rest of the term of your relationship with them You trade their account within your master account on your
Trader Workstation in IB and IB bills them automatically and puts the money in your master account You can
then withdraw those fees from your master account at any time or leave them in there or transfer them to your
LLCrsquos trading account One nice aspect for hedge fund managers with the partnership structure is that when the
manager takes his fees he takes it in the form of an increased ownership in the partnership We also call this
carried interest The manager now has a larger stake in the partnership and he benefits from the fund doing well just as the clients do So in a sense you can create this by just moving your fees from the master account to the
trading account and believe me your clients will respect you for it The downside is that the IRS treats this as
income not carried interest which means you do have to pay taxes on your fees now
Now herersquos where we get down to the real reason this all works Remember before I said that at Geller Capital
we had to allocate shares to each account a tiresome process that needed many checks and checks and
rechecks There is none of that The Trader Workstation platform allows you to trade all of your client sub
accounts at the same exact time without allocating shares Herersquos how it works Interactive Brokers allows you
to group accounts together and trade them all at once using the Portfolio Rebalance tool This page allows you
to say I want to buy 5 of each accountrsquos net liquidation value in Apple The screen that you are looking at isthe aggregate of all of the accounts in that group itrsquos almost like you are looking at the group as a fund When
you buy a 5 position it automatically calculates the amount of shares needed to buy a 5 position in each
account with a different net liquidation value You donrsquot see any of this or have to deal with any allocations
You trade off of one screen If you want to sell half that position late you go back to the rebalance screen and
enter 25 where the 5 was previously Hit create orders and it will create all the orders for all the accounts
Hit transmit and you trade for each account at the same time
The great part here is that I can trade 500 accounts with the same effort it takes to trade 1 That is the beauty
and the reason that the hedge fund structure is dead You couldnrsquot do this before Each of my clients has his or
her own account and it doesnrsquot cost me anything in terms of effort to trade
As I said this only works for certain strategies that arenrsquot too complicated Once you start getting into
derivatives and illiquid securities it gets a little more difficult Also if you are dealing with thin securities or
derivatives you have to makes sure that all accounts got filled on the trade Itrsquos not fair that one client gets filled
at one price and another client another price this is very bad
In terms of reporting and tax stuff there is no need to do anything for either All of the tax forms are prepared
automatically by Interactive Brokers for your clients and reports are generated automatically each day They can
have it sent straight to their email if they like or you can just review it once a quarter with them at the end They
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 48
can also see whatrsquos in their account at any time by logging in Yea what a novel concept a client being able to
see whatrsquos in their account I do not let my clients trade inside the account but the platform does allow this too
itrsquos their account The whole thing just makes a lot of sense
If you are looking to manage money for otherrsquos and are looking for a structure I feel this is the best way to go
for the client and the manager I hope this helps some of you out there looking to do so The partnership
structure has lead to a lot of heartache for many people most notably clients of Bernie Madoff There is no need
to custody your assets with your investment manager absolutely none And if they ask for that privilege walk
the other way and say thanks but no thanks
The hedge fund structure is dead
Note you must comply with all state and or SEC regulations as well which includes being a registered
investment advisor There is a maximum threshold for the number of accounts and aggregate capital you can
manage before having to register this goes state by state do your homework you can get started without it but
need to register eventually
mdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashndash
After running Surfview Capital for 2+ years with excellent returns (30+ each year with max 6 drawdown) in
2011 I returned money to investors in order to found a financial technology startup called Estimize Irsquom always
glad to answer any questions about Surfview Capital the strategies we ran my background Estimize etc I do
not consult on how to set up asset management firms or how to raise capital from investors If yoursquore interested
in chatting you can reach me at leigh at estimize dot com
Full Disclosure Nothing on this site should ever be considered to be advice research or an invitation to
buy or sell any securities please see the Disclaimer page for a full disclaimer
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 58
3 comments
Whats this
How To Make Earnings Estimates For
Non Pro Analysts
Why LinkedIn (LNKD) Will be a $300
Stock This Time Next Year
How To Play Post Earnings Gaps In HighGrowth Momentum hellip
What The Foxconn Robots Mean For Globalization
Measured Me Should Apple Build The
iPod of Personal hellip
Speaking of Thanksgiving D inner
The Law Of Unbundling Review of 10 Favorite Stocks For 2012
Leave a message
BestBest CommunityCommunity My DisqusMy Disqus
⤤
⤤
ShareShare
Rob bull
What is the theoretical minimum amount a client would have to fund a new account with
1
z bull
What about commision
Joe Harris bull How would you charge an incentive fee with this approach
983154
0
blog comments powered by Disqus
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 68
Share Ideas amp Learn
Leigh Drogen is the founder and chief investment officer of Surfview Capital LLC a New York based
investment management firm employing an intermediate term longshort momentum strategy More raquo
Search
LDrogen Social media algorithms andyour browser The new investmentlandscape via fawceisfawce
httpstkscocfAS August 16 212 pm
LDrogen There is a very visible error for
the wall street revenue for $WMT onEstimize provided by ZacksResearchthey are working on the issue
August 14 859 pm
LDrogen The $JCP consensus trendover time chart is basically straight downshould accelerate now
httpstkscodemz August 14 448 pm
LDrogen If $M was that bad $JCP isgoing to be a bloodbath
August 14 447 pm
LDrogen Where do I even start w iththis httpstkscosORP $$
August 14 331 pm
LDrogen monster numbers for $MYGNwow httpstkscoberQ
August 14 311 pm
Recent Posts
How To Play Post Earnings Gaps In High Growth Momentum Stocks
Why LinkedIn (LNKD) Will be a $300 Stock This Time Next Year
How To Make Earnings Estimates For Non Pro Analysts
Teaching How To Think About The Market Like A Hedge Fund Manager
Keeping Other Team Members On An Even Keel
Airbnb Set to Crush Home Away Eat Marriottrsquos Lunch and Come Public at $10B+ Valuation
Why I Joined WordSentry As An Advisor
Leigh Drogen on StockTwits
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 78
Launching Private Companies On Estimize
What Do Maps Politics Google Collaborative Data Privacy Waze and Commerce All Have In
Common
Democracy Vs Rule of Law
Archives
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
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November 2011
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January 2011
December 2010
November 2010
October 2010
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8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 28
But not anymore Now the following may sound like an advertisement for Interactive Brokers but I can assure
you I am in no way shape or form affiliated with that company In fact I have plenty of gripes with them they
are without a doubt the worst institutional and retail brokerage in terms of customer service they really just
couldnrsquot give a crap Thatrsquos ok itrsquos their business model they have decided to put their money towards
technology and not service opposite of Schwab
I would not have been able to set up my firm a few years ago if it were not for the technology on the IB Trader
Workstation platform Because of them I donrsquot need a back office and I sure as hell donrsquot need a hedge fund
structure If you are looking to set up your own firm here is a very simple way to do it that will save you a ton o
hassle a ton of money and a ton of time and you lose absolutely nothing
Surfview Capital is an LLC very simple It cost me a couple hundred dollars to set up and a few weeks I
didnrsquot need an expensive lawyer to draw up partnership documents and I sure as hell donrsquot need one going
forward
I set up an institutional account at Interactive Brokers under my LLC very simple They ask you a minimal
amount of questions and donrsquot require much in the way of forms and you have an institutional account open
The next step is not necessary but I feel that it is a good show of faith in yourself to your clients or prospective
clients When you set up your institutional master account Interactive Brokers will ask you if you would like to
open up a sub trading account for your LLC Do it and run the money in there the exact same way you are
running money for your clients This shows that you are willing to put your firmrsquos own money on the line along
side you clientrsquos in the same strategy whatrsquos good for them is not only now good for you in terms of fees it is
directly going to impact your firm in terms of PampL on your own account This goes a long way to showing that
you truly believe in yourself even beyond past performance
Next you need an investment management agreement for your firm This document takes some time to put
together and needs to be done by a lawyer The document itself is pretty simple and many investment managersuse the same one with a few little tweaks My advice if you want to be cheap about it find one online from
another firm that trades the same assets as you and modify it Then take it to the lawyer and have them look it
over to make sure its kosher Otherwise have the lawyer just write it up yoursquore going to pay for it but getting
this right is important This is the agreement between you and the client that lays out everything that isnrsquot said in
the Interactive Brokers managed account sign up process The truth is that you donrsquot need this document
legally But to be safe and cover yourself in case of a dispute in reality you need it I would share mine here
but something tells me thatrsquos just not the right thing to do and it could be illegal I donrsquot know
Bringing clients into your firm is not a difficult process when you set up the structure the way I have Herersquos how
it works Someone contacts me either through the web site the blog Twitter a friend of a friend a friend of aclient or however else they might find Surfview Capital We have a few conversations I ask them an extensive
list of questions they ask me any questions they have and if we both feel like therersquos a mutual fit I send them the
investment management agreement We review it together they sign it and send it back to me I then go into my
Interactive Brokers platform and send them an invitation to open a brokerage account This account is their
own it is not under your LLC you donrsquot have any access to the funds in the account you can not move money
in and out you have no power of attorney over the account it is theirs just as it would be had they signed up
without you The invitation to open the brokerage account comes with another electronic sheet (this is all
electronic by the way there is no actual paper required itrsquos amazing) the second set of forms gives you the
permission to trade the account and it lays out how you will bill the client You can choose from several
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 38
different ways I wonrsquot cover that here you will figure it out when you get in there and look around but basically
itrsquos all automated and thatrsquos awesome
The client fills out the forms online and opens the account Their account is now under your master account you
have access to trade it and the fees are automatically taken out there is no billing or invoicing no back office no
computing stuff itrsquos all done automatically amazing You need to take the time to do a back of the napkin
review at the end of each quarter to make sure that something huge didnrsquot go wrong some form wasnrsquot
incorrectly filled out and wayyyy too much or too little was charged but I havenrsquot run into an issue yet Just be
diligent and look for obvious errors
The client then funds the account and thatrsquos about it for the signup process You never touch a dollar of theirs
ever The only paperwork you handle is sending them the investment management agreement And thatrsquos it for
the rest of the term of your relationship with them You trade their account within your master account on your
Trader Workstation in IB and IB bills them automatically and puts the money in your master account You can
then withdraw those fees from your master account at any time or leave them in there or transfer them to your
LLCrsquos trading account One nice aspect for hedge fund managers with the partnership structure is that when the
manager takes his fees he takes it in the form of an increased ownership in the partnership We also call this
carried interest The manager now has a larger stake in the partnership and he benefits from the fund doing well just as the clients do So in a sense you can create this by just moving your fees from the master account to the
trading account and believe me your clients will respect you for it The downside is that the IRS treats this as
income not carried interest which means you do have to pay taxes on your fees now
Now herersquos where we get down to the real reason this all works Remember before I said that at Geller Capital
we had to allocate shares to each account a tiresome process that needed many checks and checks and
rechecks There is none of that The Trader Workstation platform allows you to trade all of your client sub
accounts at the same exact time without allocating shares Herersquos how it works Interactive Brokers allows you
to group accounts together and trade them all at once using the Portfolio Rebalance tool This page allows you
to say I want to buy 5 of each accountrsquos net liquidation value in Apple The screen that you are looking at isthe aggregate of all of the accounts in that group itrsquos almost like you are looking at the group as a fund When
you buy a 5 position it automatically calculates the amount of shares needed to buy a 5 position in each
account with a different net liquidation value You donrsquot see any of this or have to deal with any allocations
You trade off of one screen If you want to sell half that position late you go back to the rebalance screen and
enter 25 where the 5 was previously Hit create orders and it will create all the orders for all the accounts
Hit transmit and you trade for each account at the same time
The great part here is that I can trade 500 accounts with the same effort it takes to trade 1 That is the beauty
and the reason that the hedge fund structure is dead You couldnrsquot do this before Each of my clients has his or
her own account and it doesnrsquot cost me anything in terms of effort to trade
As I said this only works for certain strategies that arenrsquot too complicated Once you start getting into
derivatives and illiquid securities it gets a little more difficult Also if you are dealing with thin securities or
derivatives you have to makes sure that all accounts got filled on the trade Itrsquos not fair that one client gets filled
at one price and another client another price this is very bad
In terms of reporting and tax stuff there is no need to do anything for either All of the tax forms are prepared
automatically by Interactive Brokers for your clients and reports are generated automatically each day They can
have it sent straight to their email if they like or you can just review it once a quarter with them at the end They
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 48
can also see whatrsquos in their account at any time by logging in Yea what a novel concept a client being able to
see whatrsquos in their account I do not let my clients trade inside the account but the platform does allow this too
itrsquos their account The whole thing just makes a lot of sense
If you are looking to manage money for otherrsquos and are looking for a structure I feel this is the best way to go
for the client and the manager I hope this helps some of you out there looking to do so The partnership
structure has lead to a lot of heartache for many people most notably clients of Bernie Madoff There is no need
to custody your assets with your investment manager absolutely none And if they ask for that privilege walk
the other way and say thanks but no thanks
The hedge fund structure is dead
Note you must comply with all state and or SEC regulations as well which includes being a registered
investment advisor There is a maximum threshold for the number of accounts and aggregate capital you can
manage before having to register this goes state by state do your homework you can get started without it but
need to register eventually
mdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashndash
After running Surfview Capital for 2+ years with excellent returns (30+ each year with max 6 drawdown) in
2011 I returned money to investors in order to found a financial technology startup called Estimize Irsquom always
glad to answer any questions about Surfview Capital the strategies we ran my background Estimize etc I do
not consult on how to set up asset management firms or how to raise capital from investors If yoursquore interested
in chatting you can reach me at leigh at estimize dot com
Full Disclosure Nothing on this site should ever be considered to be advice research or an invitation to
buy or sell any securities please see the Disclaimer page for a full disclaimer
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 58
3 comments
Whats this
How To Make Earnings Estimates For
Non Pro Analysts
Why LinkedIn (LNKD) Will be a $300
Stock This Time Next Year
How To Play Post Earnings Gaps In HighGrowth Momentum hellip
What The Foxconn Robots Mean For Globalization
Measured Me Should Apple Build The
iPod of Personal hellip
Speaking of Thanksgiving D inner
The Law Of Unbundling Review of 10 Favorite Stocks For 2012
Leave a message
BestBest CommunityCommunity My DisqusMy Disqus
⤤
⤤
ShareShare
Rob bull
What is the theoretical minimum amount a client would have to fund a new account with
1
z bull
What about commision
Joe Harris bull How would you charge an incentive fee with this approach
983154
0
blog comments powered by Disqus
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 68
Share Ideas amp Learn
Leigh Drogen is the founder and chief investment officer of Surfview Capital LLC a New York based
investment management firm employing an intermediate term longshort momentum strategy More raquo
Search
LDrogen Social media algorithms andyour browser The new investmentlandscape via fawceisfawce
httpstkscocfAS August 16 212 pm
LDrogen There is a very visible error for
the wall street revenue for $WMT onEstimize provided by ZacksResearchthey are working on the issue
August 14 859 pm
LDrogen The $JCP consensus trendover time chart is basically straight downshould accelerate now
httpstkscodemz August 14 448 pm
LDrogen If $M was that bad $JCP isgoing to be a bloodbath
August 14 447 pm
LDrogen Where do I even start w iththis httpstkscosORP $$
August 14 331 pm
LDrogen monster numbers for $MYGNwow httpstkscoberQ
August 14 311 pm
Recent Posts
How To Play Post Earnings Gaps In High Growth Momentum Stocks
Why LinkedIn (LNKD) Will be a $300 Stock This Time Next Year
How To Make Earnings Estimates For Non Pro Analysts
Teaching How To Think About The Market Like A Hedge Fund Manager
Keeping Other Team Members On An Even Keel
Airbnb Set to Crush Home Away Eat Marriottrsquos Lunch and Come Public at $10B+ Valuation
Why I Joined WordSentry As An Advisor
Leigh Drogen on StockTwits
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 78
Launching Private Companies On Estimize
What Do Maps Politics Google Collaborative Data Privacy Waze and Commerce All Have In
Common
Democracy Vs Rule of Law
Archives
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 38
different ways I wonrsquot cover that here you will figure it out when you get in there and look around but basically
itrsquos all automated and thatrsquos awesome
The client fills out the forms online and opens the account Their account is now under your master account you
have access to trade it and the fees are automatically taken out there is no billing or invoicing no back office no
computing stuff itrsquos all done automatically amazing You need to take the time to do a back of the napkin
review at the end of each quarter to make sure that something huge didnrsquot go wrong some form wasnrsquot
incorrectly filled out and wayyyy too much or too little was charged but I havenrsquot run into an issue yet Just be
diligent and look for obvious errors
The client then funds the account and thatrsquos about it for the signup process You never touch a dollar of theirs
ever The only paperwork you handle is sending them the investment management agreement And thatrsquos it for
the rest of the term of your relationship with them You trade their account within your master account on your
Trader Workstation in IB and IB bills them automatically and puts the money in your master account You can
then withdraw those fees from your master account at any time or leave them in there or transfer them to your
LLCrsquos trading account One nice aspect for hedge fund managers with the partnership structure is that when the
manager takes his fees he takes it in the form of an increased ownership in the partnership We also call this
carried interest The manager now has a larger stake in the partnership and he benefits from the fund doing well just as the clients do So in a sense you can create this by just moving your fees from the master account to the
trading account and believe me your clients will respect you for it The downside is that the IRS treats this as
income not carried interest which means you do have to pay taxes on your fees now
Now herersquos where we get down to the real reason this all works Remember before I said that at Geller Capital
we had to allocate shares to each account a tiresome process that needed many checks and checks and
rechecks There is none of that The Trader Workstation platform allows you to trade all of your client sub
accounts at the same exact time without allocating shares Herersquos how it works Interactive Brokers allows you
to group accounts together and trade them all at once using the Portfolio Rebalance tool This page allows you
to say I want to buy 5 of each accountrsquos net liquidation value in Apple The screen that you are looking at isthe aggregate of all of the accounts in that group itrsquos almost like you are looking at the group as a fund When
you buy a 5 position it automatically calculates the amount of shares needed to buy a 5 position in each
account with a different net liquidation value You donrsquot see any of this or have to deal with any allocations
You trade off of one screen If you want to sell half that position late you go back to the rebalance screen and
enter 25 where the 5 was previously Hit create orders and it will create all the orders for all the accounts
Hit transmit and you trade for each account at the same time
The great part here is that I can trade 500 accounts with the same effort it takes to trade 1 That is the beauty
and the reason that the hedge fund structure is dead You couldnrsquot do this before Each of my clients has his or
her own account and it doesnrsquot cost me anything in terms of effort to trade
As I said this only works for certain strategies that arenrsquot too complicated Once you start getting into
derivatives and illiquid securities it gets a little more difficult Also if you are dealing with thin securities or
derivatives you have to makes sure that all accounts got filled on the trade Itrsquos not fair that one client gets filled
at one price and another client another price this is very bad
In terms of reporting and tax stuff there is no need to do anything for either All of the tax forms are prepared
automatically by Interactive Brokers for your clients and reports are generated automatically each day They can
have it sent straight to their email if they like or you can just review it once a quarter with them at the end They
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 48
can also see whatrsquos in their account at any time by logging in Yea what a novel concept a client being able to
see whatrsquos in their account I do not let my clients trade inside the account but the platform does allow this too
itrsquos their account The whole thing just makes a lot of sense
If you are looking to manage money for otherrsquos and are looking for a structure I feel this is the best way to go
for the client and the manager I hope this helps some of you out there looking to do so The partnership
structure has lead to a lot of heartache for many people most notably clients of Bernie Madoff There is no need
to custody your assets with your investment manager absolutely none And if they ask for that privilege walk
the other way and say thanks but no thanks
The hedge fund structure is dead
Note you must comply with all state and or SEC regulations as well which includes being a registered
investment advisor There is a maximum threshold for the number of accounts and aggregate capital you can
manage before having to register this goes state by state do your homework you can get started without it but
need to register eventually
mdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashndash
After running Surfview Capital for 2+ years with excellent returns (30+ each year with max 6 drawdown) in
2011 I returned money to investors in order to found a financial technology startup called Estimize Irsquom always
glad to answer any questions about Surfview Capital the strategies we ran my background Estimize etc I do
not consult on how to set up asset management firms or how to raise capital from investors If yoursquore interested
in chatting you can reach me at leigh at estimize dot com
Full Disclosure Nothing on this site should ever be considered to be advice research or an invitation to
buy or sell any securities please see the Disclaimer page for a full disclaimer
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 58
3 comments
Whats this
How To Make Earnings Estimates For
Non Pro Analysts
Why LinkedIn (LNKD) Will be a $300
Stock This Time Next Year
How To Play Post Earnings Gaps In HighGrowth Momentum hellip
What The Foxconn Robots Mean For Globalization
Measured Me Should Apple Build The
iPod of Personal hellip
Speaking of Thanksgiving D inner
The Law Of Unbundling Review of 10 Favorite Stocks For 2012
Leave a message
BestBest CommunityCommunity My DisqusMy Disqus
⤤
⤤
ShareShare
Rob bull
What is the theoretical minimum amount a client would have to fund a new account with
1
z bull
What about commision
Joe Harris bull How would you charge an incentive fee with this approach
983154
0
blog comments powered by Disqus
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 68
Share Ideas amp Learn
Leigh Drogen is the founder and chief investment officer of Surfview Capital LLC a New York based
investment management firm employing an intermediate term longshort momentum strategy More raquo
Search
LDrogen Social media algorithms andyour browser The new investmentlandscape via fawceisfawce
httpstkscocfAS August 16 212 pm
LDrogen There is a very visible error for
the wall street revenue for $WMT onEstimize provided by ZacksResearchthey are working on the issue
August 14 859 pm
LDrogen The $JCP consensus trendover time chart is basically straight downshould accelerate now
httpstkscodemz August 14 448 pm
LDrogen If $M was that bad $JCP isgoing to be a bloodbath
August 14 447 pm
LDrogen Where do I even start w iththis httpstkscosORP $$
August 14 331 pm
LDrogen monster numbers for $MYGNwow httpstkscoberQ
August 14 311 pm
Recent Posts
How To Play Post Earnings Gaps In High Growth Momentum Stocks
Why LinkedIn (LNKD) Will be a $300 Stock This Time Next Year
How To Make Earnings Estimates For Non Pro Analysts
Teaching How To Think About The Market Like A Hedge Fund Manager
Keeping Other Team Members On An Even Keel
Airbnb Set to Crush Home Away Eat Marriottrsquos Lunch and Come Public at $10B+ Valuation
Why I Joined WordSentry As An Advisor
Leigh Drogen on StockTwits
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 78
Launching Private Companies On Estimize
What Do Maps Politics Google Collaborative Data Privacy Waze and Commerce All Have In
Common
Democracy Vs Rule of Law
Archives
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 48
can also see whatrsquos in their account at any time by logging in Yea what a novel concept a client being able to
see whatrsquos in their account I do not let my clients trade inside the account but the platform does allow this too
itrsquos their account The whole thing just makes a lot of sense
If you are looking to manage money for otherrsquos and are looking for a structure I feel this is the best way to go
for the client and the manager I hope this helps some of you out there looking to do so The partnership
structure has lead to a lot of heartache for many people most notably clients of Bernie Madoff There is no need
to custody your assets with your investment manager absolutely none And if they ask for that privilege walk
the other way and say thanks but no thanks
The hedge fund structure is dead
Note you must comply with all state and or SEC regulations as well which includes being a registered
investment advisor There is a maximum threshold for the number of accounts and aggregate capital you can
manage before having to register this goes state by state do your homework you can get started without it but
need to register eventually
mdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashmdashndash
After running Surfview Capital for 2+ years with excellent returns (30+ each year with max 6 drawdown) in
2011 I returned money to investors in order to found a financial technology startup called Estimize Irsquom always
glad to answer any questions about Surfview Capital the strategies we ran my background Estimize etc I do
not consult on how to set up asset management firms or how to raise capital from investors If yoursquore interested
in chatting you can reach me at leigh at estimize dot com
Full Disclosure Nothing on this site should ever be considered to be advice research or an invitation to
buy or sell any securities please see the Disclaimer page for a full disclaimer
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 58
3 comments
Whats this
How To Make Earnings Estimates For
Non Pro Analysts
Why LinkedIn (LNKD) Will be a $300
Stock This Time Next Year
How To Play Post Earnings Gaps In HighGrowth Momentum hellip
What The Foxconn Robots Mean For Globalization
Measured Me Should Apple Build The
iPod of Personal hellip
Speaking of Thanksgiving D inner
The Law Of Unbundling Review of 10 Favorite Stocks For 2012
Leave a message
BestBest CommunityCommunity My DisqusMy Disqus
⤤
⤤
ShareShare
Rob bull
What is the theoretical minimum amount a client would have to fund a new account with
1
z bull
What about commision
Joe Harris bull How would you charge an incentive fee with this approach
983154
0
blog comments powered by Disqus
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 68
Share Ideas amp Learn
Leigh Drogen is the founder and chief investment officer of Surfview Capital LLC a New York based
investment management firm employing an intermediate term longshort momentum strategy More raquo
Search
LDrogen Social media algorithms andyour browser The new investmentlandscape via fawceisfawce
httpstkscocfAS August 16 212 pm
LDrogen There is a very visible error for
the wall street revenue for $WMT onEstimize provided by ZacksResearchthey are working on the issue
August 14 859 pm
LDrogen The $JCP consensus trendover time chart is basically straight downshould accelerate now
httpstkscodemz August 14 448 pm
LDrogen If $M was that bad $JCP isgoing to be a bloodbath
August 14 447 pm
LDrogen Where do I even start w iththis httpstkscosORP $$
August 14 331 pm
LDrogen monster numbers for $MYGNwow httpstkscoberQ
August 14 311 pm
Recent Posts
How To Play Post Earnings Gaps In High Growth Momentum Stocks
Why LinkedIn (LNKD) Will be a $300 Stock This Time Next Year
How To Make Earnings Estimates For Non Pro Analysts
Teaching How To Think About The Market Like A Hedge Fund Manager
Keeping Other Team Members On An Even Keel
Airbnb Set to Crush Home Away Eat Marriottrsquos Lunch and Come Public at $10B+ Valuation
Why I Joined WordSentry As An Advisor
Leigh Drogen on StockTwits
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 78
Launching Private Companies On Estimize
What Do Maps Politics Google Collaborative Data Privacy Waze and Commerce All Have In
Common
Democracy Vs Rule of Law
Archives
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 58
3 comments
Whats this
How To Make Earnings Estimates For
Non Pro Analysts
Why LinkedIn (LNKD) Will be a $300
Stock This Time Next Year
How To Play Post Earnings Gaps In HighGrowth Momentum hellip
What The Foxconn Robots Mean For Globalization
Measured Me Should Apple Build The
iPod of Personal hellip
Speaking of Thanksgiving D inner
The Law Of Unbundling Review of 10 Favorite Stocks For 2012
Leave a message
BestBest CommunityCommunity My DisqusMy Disqus
⤤
⤤
ShareShare
Rob bull
What is the theoretical minimum amount a client would have to fund a new account with
1
z bull
What about commision
Joe Harris bull How would you charge an incentive fee with this approach
983154
0
blog comments powered by Disqus
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 68
Share Ideas amp Learn
Leigh Drogen is the founder and chief investment officer of Surfview Capital LLC a New York based
investment management firm employing an intermediate term longshort momentum strategy More raquo
Search
LDrogen Social media algorithms andyour browser The new investmentlandscape via fawceisfawce
httpstkscocfAS August 16 212 pm
LDrogen There is a very visible error for
the wall street revenue for $WMT onEstimize provided by ZacksResearchthey are working on the issue
August 14 859 pm
LDrogen The $JCP consensus trendover time chart is basically straight downshould accelerate now
httpstkscodemz August 14 448 pm
LDrogen If $M was that bad $JCP isgoing to be a bloodbath
August 14 447 pm
LDrogen Where do I even start w iththis httpstkscosORP $$
August 14 331 pm
LDrogen monster numbers for $MYGNwow httpstkscoberQ
August 14 311 pm
Recent Posts
How To Play Post Earnings Gaps In High Growth Momentum Stocks
Why LinkedIn (LNKD) Will be a $300 Stock This Time Next Year
How To Make Earnings Estimates For Non Pro Analysts
Teaching How To Think About The Market Like A Hedge Fund Manager
Keeping Other Team Members On An Even Keel
Airbnb Set to Crush Home Away Eat Marriottrsquos Lunch and Come Public at $10B+ Valuation
Why I Joined WordSentry As An Advisor
Leigh Drogen on StockTwits
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 78
Launching Private Companies On Estimize
What Do Maps Politics Google Collaborative Data Privacy Waze and Commerce All Have In
Common
Democracy Vs Rule of Law
Archives
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 68
Share Ideas amp Learn
Leigh Drogen is the founder and chief investment officer of Surfview Capital LLC a New York based
investment management firm employing an intermediate term longshort momentum strategy More raquo
Search
LDrogen Social media algorithms andyour browser The new investmentlandscape via fawceisfawce
httpstkscocfAS August 16 212 pm
LDrogen There is a very visible error for
the wall street revenue for $WMT onEstimize provided by ZacksResearchthey are working on the issue
August 14 859 pm
LDrogen The $JCP consensus trendover time chart is basically straight downshould accelerate now
httpstkscodemz August 14 448 pm
LDrogen If $M was that bad $JCP isgoing to be a bloodbath
August 14 447 pm
LDrogen Where do I even start w iththis httpstkscosORP $$
August 14 331 pm
LDrogen monster numbers for $MYGNwow httpstkscoberQ
August 14 311 pm
Recent Posts
How To Play Post Earnings Gaps In High Growth Momentum Stocks
Why LinkedIn (LNKD) Will be a $300 Stock This Time Next Year
How To Make Earnings Estimates For Non Pro Analysts
Teaching How To Think About The Market Like A Hedge Fund Manager
Keeping Other Team Members On An Even Keel
Airbnb Set to Crush Home Away Eat Marriottrsquos Lunch and Come Public at $10B+ Valuation
Why I Joined WordSentry As An Advisor
Leigh Drogen on StockTwits
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 78
Launching Private Companies On Estimize
What Do Maps Politics Google Collaborative Data Privacy Waze and Commerce All Have In
Common
Democracy Vs Rule of Law
Archives
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 78
Launching Private Companies On Estimize
What Do Maps Politics Google Collaborative Data Privacy Waze and Commerce All Have In
Common
Democracy Vs Rule of Law
Archives
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
8112019 The Hedge Fund Structure
httpslidepdfcomreaderfullthe-hedge-fund-structure 88
Leigh Drogen(httpkloutcomuserLDrogen
tp=overallampte=badgeampsource=widgetampcreative=widget
57
Home |
About |
Contact
This material is provided for informational purposes only as of the date hereof and is subject to change without
noticeThis material may not be suitable for all investors and is not intended to be an offer or the solicitation of
any offer to buy or sell any securities
