Incubator funds? Is it worthwhile to self fund a very small fund of your own to develop a track record?

(Last Updated On: February 10, 2012)
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Incubator funds? Is it worthwhile to self fund a very small fund of your own to develop a track record? Or is the scale so meaningless that it won’t be viewed as valuable?

 

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What are the regulations with small funds? As I am interested in being part of an incubator and starting the associated fund.

 

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I recently had this conversation and people were complaining that only the big boys get the money nowadays, but someone countered that people like the idea of starting with a big bank – when really if they did start, and published their results, and had them audited and verified, then the inflows will come… but over 3 years of your own money, balls on the line, will get you the incubators attention. “starting a fund” is near impossible without building it up first, so yes, I think it is worthwhile – but only if you are in it for the long haul, and can prove what you profess..

 

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This may be a very slight deviation from the precise topic here, but it’s very close. I had a discussion with folks from Bloomberg this week regarding an idea I’ve floated with them before.

It goes like this: In PORT, the now-greatly-expanded portfolio analytics hosted on Bloomberg, they implement a simple option: that portfolios cannot be revised for past dates, and positions are implemented at VWAP in the future (rest of day, next 24 hrs, etc). This then becomes an audited track record – it excludes market impact, but otherwise is highly realistic. This portfolio’s performance and risk can then be permissioned for sharing with other Bloomberg users, who would include incubators.

From the incubator perspective, they can trawl the universe for attractive risk/return performance in the investment universe of interest, monitor positions, discuss the logic behind them, see the process in action. They reduce risks, costs, and get easy access to a large pool of talent, arguably the entire pool of interest.

From the wannabee perspective, it gets them over the chicken/egg problem: no capital > no track record > no interest > no capital (repeat). For someone like myself who sits in a HF office administering my process as a paper portfolio on an accounting system (and PORT) and still awaiting capital allocation, sitting somewhat frustrated on a deep capacity Sharpe Ratio 4 process, it could open more doors a bit quicker.

From Bloomberg’s perspective, it gets them into a very interesting space, matching supply and demand in the market for talent. Intriguingly the idea was not new to them, but mysteriously somehow had never got out of the blocks. Watch this space? Someone will do this, and it will be fascinating when they do. Lets be clear: there are already ‘fantasy portfolio’ competitions such as CNBC’s, but these are shoot-the-lights-out competitions for punters, they are not risk-adjusted, they are not testing the right metrics, they do not offer drilldown, analysis, monitoring, they are candy-floss.

Go Bloomberg!

 

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I did not know about this, I’m logging into my Bloomberg terminal now to get started…

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Looks like I forgot to say clearly that the auditable record on PORT does not exist, at least not yet, it is not even planned, it is purely blue-sky thinking.

What does exist is TMSG, which is intended as a ‘trade message network’ ie for communicating between buy-side and sell-side, analysing the performance of the recommendations – a knock-off of other similar networks that have been around a while. It may be just dandy for the intended purpose but it is not fit for the purpose I described because (a) it does not link to PORT (b) it is manual entry only, line-by-line.

You can of course use PORT, but you can also overwrite the past positions so obviously no incubator is going to take it seriously, any more than they would any other backtest.

If you want to see the type of functionality I described, I suggest using the ‘feedback’ tab in PORT – management at Bloomberg do read this stuff. Furthermore it would not take much to implement this functionality, so there is potentially big reward for small effort. It is an idea whose time has come, in fact it is a vacuum waiting to be filled.

 

 

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Hi i there My name is Bryan Downing. I am part of a company called QuantLabs.Net This is specifically a company with a high profile blog about technology, trading, financial, investment, quant, etc. It posts things on how to do job interviews with large companies like Morgan Stanley, Bloomberg, Citibank, and IBM. It also posts different unique tips and tricks on Java, C++, or C programming. It posts about different techniques in learning about Matlab and building models or strategies. There is a lot here if you are into venturing into the financial world like quant or technical analysis. It also discusses the future generation of trading and programming Specialties: C++, Java, C#, Matlab, quant, models, strategies, technical analysis, linux, windows P.S. I have been known to be the worst typist. Do not be offended by it as I like to bang stuff out and put priorty of what I do over typing. Maybe one day I can get a full time copy editor to help out. Do note I prefer videos as they are much easier to produce so check out my many video at youtube.com/quantlabs