Fund Management Setup

[A2xTrad]

Hi Everyone, I've been creating trading algorithms for a while and have good and stable results regardless of markets direction.

I'm thinking about the best setup to sell my services to setup my algorithms on client's accounts and let them use it again a setup fee + monthly subscription. Technically it's very easy and do-able, customers just need to open an IBKR account and I can connect my algos, but how about legal structure?

What the best juridiction for this kind of setup and where I could avoid the need to have a financial advisor license? (I'm based in USA)

Thank you

 

[A2xTrad]

You will need a master feeder fund structure on the cayman islands if you wanna charge a management fee

Thank you for your feedback. Even if I don't want to pool investor's capital, I would need this master feeder structure?

I was thinking about the easiest way to do this, that's why I don't want to pool money, they keep it on their own account and I just let them connect my algorithms against a monthly "fee"

 

[latindev]

Thank you for your feedback. Even if I don't want to pool investor's capital, I would need this master feeder structure?

I was thinking about the easiest way to do this, that's why I don't want to pool money, they keep it on their own account and I just let them connect my algorithms against a monthly "fee"

Even if you don't pool the money you are still doing financial advising and that's highly regulated, the Cayman Island structure is probably the cheapest one on the world

 

[A2xTrad]

Yep true
Idk what his monthly net would be to cover costs etc
But if Cayman then fastest would be a readymade structure compared to applying as applying and setup from beginning might cost more

Do you have a rough idea of monthly cost of this setup in Cayman?

Worth doing it in Cayman of maybe keeping it simple staying in the US? Or maybe it's more regulated here regarding the activity?

 

[latindev]

btw just so you know: having the fund in the Caymand Island doesn't mean you can onboard everybody from the US right away, you still need to follow the US rules (just pointing out because you mentioned the US so I assume you are targeting the US)

 

[A2xTrad]

btw just so you know: having the fund in the Caymand Island doesn't mean you can onboard everybody from the US right away, you still need to follow the US rules (just pointing out because you mentioned the US so I assume you are targeting the US)

Thank you for your feedback. One last question, do you think a management company like that would be more simple to setup / less regulated, or maybe it would be better to directly create a fund where I pool my customers money? (It won't be a big fund, we are talking about few $M under management)

I'm just trying to find the best/easiest setup

 

[latindev]

Thank you for your feedback. One last question, do you think a management company like that would be more simple to setup / less regulated, or maybe it would be better to directly create a fund where I pool my customers money? (It won't be a big fund, we are talking about few $M under management)

I'm just trying to find the best/easiest setup

If they are accredited investors then yeah the cayman probably will be easier/cheaper to keep, if they are not accredited investors then it probably doesn't matter where you open it because you will need to follow regulations where the clients live most likely. This assuming the investors are not from the US.

If they are from the US then you better get legal advise from people there so you don't make mistakes.

 

[alfonsesimone04]

Do you have a rough idea of monthly cost of this setup in Cayman?

Worth doing it in Cayman of maybe keeping it simple staying in the US? Or maybe it's more regulated here regarding the activity?

I have an associate looking to sell his Cayman fund, let me know if you are interested.

 

[John Noel]

Do you have a rough idea of monthly cost of this setup in Cayman?

Worth doing it in Cayman of maybe keeping it simple staying in the US? Or maybe it's more regulated here regarding the activity?

A2xTrad have you already set up the fund? I am in the same situation and I would appreciate if you can share your experience, would you recommend any advisors in cayman?

 

[alistera]

Every fund we've ever had dealings with in Cayman/BVI/Bahamas were attempting to generate fees over protection of investor capital and had to end the discussion, honestly if you want to set up a trustworthy entity it's best you go onshore, there are various places around the world, hooking in to people's trading accounts directly is not great, it's better you have 'open source' connectors they run locally from your signals, this is how we do it with crypto arbitrage, works perfectly and avoids some of the more complicated issues.

You can setup basic funds for $20k+ but again after having worked on these even creating the prospectus, you are talking a 1yr launch window up to $100k, the best thing you can do is white label it to funds, again we have a lot of talks with funds about tihs but even they don't run as hedge funds, they are actually running as proprietary trading firms and passing investor capital to third party traders.

Now this seems reasonable except neither the investors know their capital is being outsourced nor the traders know the capital is not internal prop firm capital, and when it goes wrong like the last fund who's NAV whipsawed from 90% down to 30% (which is what happens because they outsource), someone is going to be left with a problam, we chose it not to be us.

There are also some weird rules like allowing a certain number of non-Accredited investors but you're going to need 3-5yrs trading record which is near impossible above 20%pa, the best is to allow funds to use a proof of concept like $5k for some months with live signals (only test capital - no investor nor internal capital) and allow them to monitor realtime results, oddly you will then find most still can't afford that or don't have the time because they're running as a prop firm, once you scratch under the surface of the financial markets things don't quite work as you expect.

 

[JohnnyDoe]

Every fund we've ever had dealings with in Cayman/BVI/Bahamas were attempting to generate fees over protection of investor capital and had to end the discussion, honestly if you want to set up a trustworthy entity it's best you go onshore, there are various places around the world, hooking in to people's trading accounts directly is not great, it's better you have 'open source' connectors they run locally from your signals, this is how we do it with crypto arbitrage, works perfectly and avoids some of the more complicated issues.

You can setup basic funds for $20k+ but again after having worked on these even creating the prospectus, you are talking a 1yr launch window up to $100k, the best thing you can do is white label it to funds, again we have a lot of talks with funds about tihs but even they don't run as hedge funds, they are actually running as proprietary trading firms and passing investor capital to third party traders.

Now this seems reasonable except neither the investors know their capital is being outsourced nor the traders know the capital is not internal prop firm capital, and when it goes wrong like the last fund who's NAV whipsawed from 90% down to 30% (which is what happens because they outsource), someone is going to be left with a problam, we chose it not to be us.

There are also some weird rules like allowing a certain number of non-Accredited investors but you're going to need 3-5yrs trading record which is near impossible above 20%pa, the best is to allow funds to use a proof of concept like $5k for some months with live signals (only test capital - no investor nor internal capital) and allow them to monitor realtime results, oddly you will then find most still can't afford that or don't have the time because they're running as a prop firm, once you scratch under the surface of the financial markets things don't quite work as you expect.

 

[0cca]

For your setup, you're diving into complex waters, especially given your location in the USA. US financial regulations are pretty strict, and not having the appropriate licenses can lead to serious penalties, even if your business is based offshore.

Countries that have more lenient financial service regulations often include jurisdictions like Belize, Seychelles, or Vanuatu. However, keep in mind, if you're a U.S. citizen or resident, you're still obligated to comply with U.S. regulations - the long arm of the SEC can reach pretty far.

For most jurisdictions, any business that's managing or giving advice on others' investments requires licensing. Your case might be slightly different if you're just providing a tool and not making investment decisions or giving advice. However, the exact legal interpretation can vary, and it's a grey area.