Good question, I'm looking forward to the answers. As far as I understand, unless you are doing Separately Managed Accounts for friends and family only, you'll need to be a Registered Investment Advisor, either with the SEC or with one or more states. To start an actual hedge fund, you'll need to set up all the various legal and compliance structures, maybe involving feeder funds offshore, at least if you are going to target tax-exempt pension money.

And yes, I expect you'd need at least a year of real money track record. Your best bet, in my opinion, is to try and conform it to Quantopian's contest goals and aim for inclusion in their fund.

I know that personally, I'm not going to worry about "other people's money" until my strategies have been running the majority of my liquid net worth for a year or two, but I am keen to hear about the precise steps involved in setting up the various structures to do so.

I am going through this process right now, and what Simon has stated is pretty much correct. Most people would opt to setup a hedge fund, but the maintenance costs of running even a small hedge fund is often 6 digits per annum. A cheaper route is setup a RIA (this is the route I am taking). You will need to pass your Series 65 and will discover just how tightly regulated the finance industry is (if you don't already know).

In terms of raising money, this is a resource that I think provides a good summary: https://www.quora.com/What-is-the-best-way-to-raise-money-for-a-new-hedge-fund-with-no-track-record

If you want something more indepth, you might want to read Tim Sykes book (pdf).

The above response is general information ONLY and is not legal advice, and should NOT be relied upon to take or refrain from taking any action. I am not your attorney. You should seek the advice of competent counsel before taking any action related to your inquiry.

I would look into starting an "investment club." I believe if you where to format it under a LLC then you wouldn't need to to conform to SEC stipulations. There obviously needs to be some sort of contract in place, but if your talking about a "smallish" amount under management then this is probably the best route from what I understand, but what do I know my advice is probably worth about as much as it cost you. I like Simon am interested in hopefully getting feedback from someone with more experience and knowledge than myself.

Do you think it's something that would fit into the Quantopian hedge fund?

We'd help you get past a lot of the unpleasant parts - reporting, compliance, not to mention capital solicitation. And, of course, you'd get to share in the returns of the algorithm.

If that isn't a fit, I'm interested in understanding why. It's good to hear where we're not meeting the need.

Thank you, guys, for really helpfull info!

After reading all of this, if I got it right, I conclude, that track record is first and must step. And first money for track record is you own or friends and family money.
What I didn't fully understand is message given in one of the links that simple broker statement will not impress funds, they need audited statements for separate entity.
Is it really true or broker statements will work for funds as an evidence that my strategy works?
If I'm doign track recors for my own, I'd like to avoid extra costs for legal and administrative services...

As for Quantopian hedge fund - yes, I started learning information on this site. My understanding that to work through it, you need to share algorithms and put them into "guts" of Quantopian engine. Correct me pls if Im wrong. The thing is that my algorithms is using data about funds positions devired from 13F forms, which I didn't found on you platform. Plus it requires huge computing capacity and it's much easier to process it on local servers that in cloud.
May it work like this - I'm providing signals to your platform and when you see confirmation that if works funding is allocated?

Vlad - pretty much all funds will want independently audited accounts from a CPA. Many will want it to be audited by a reputable accounting firm i.e. it will cost you a small fortune to get your accounting done.

Also regarding the Quantopian fund, you dont have to have your code hosted on Quantopian, you can generate your signals, pop it into a CSV file and then fetch the csv file on your Quantopian algo and trade using the signals.
If you did decide to create your algo on Quantopian, rest assured that you dont need to share your algo and no one on the Q team has access to look at your code unless you explicitly give them permissions.

Vlad - you don't have to share your algorithm, but you do have to run it on our platform. We promise to protect your intellectual property and keep it secret. It is part of our core commitment to our users. (see Section 5)

We tend to cautiously avoid algorithms where the important computation is happening off of our platform. That said, if your algorithm meets all of our criteria, we might find ways to evolve the platform so that it can fully support the work you are doing.

I do recommend that you implement your algorithm here. If it doesn't get picked up by the fund, the investment was some time. If it does get picked up, you get to avoid all of the expensive headaches noted by the other authors.

Hi Vlad,

What do you mean by huge computing capacity? Just curious, if you can some how elaborate without giving away too much.

Grant

Thank you, guys
I got a lot of info to process.
The main issue, besides capacity, is availability of 13F-HR data on Quantopian data feed. I don't see it here.
Grant, here are some numbers: DB size is 7Gb, loading time is ~15 hours (on not fastest server in the world), algorithm working time is about 7 hours.

Vlad,

When the Quantopian research platform was launched, I tried uploading some large files (several GBs, I recall), and the system wouldn't handle it. The research platform does not time-out (as does the trading platform--max is 15 minutes), but you can't really see what's going on (e.g. no Windows-like Task Manager).

The other issue is that there is no way to get results from the research platform into the trading platform (other than limited copy and paste).

What you describe sounds pretty tricky on the Quantopian platform, but as Dan suggests, they have been good about evolving the platform. At this point, I gather they are looking to keep costs in check, but reach the maximum number of people around the globe with lots of free tools.

Grant