System Trading Blog

Make Your Money Work Harder

Archive for the ‘hedge funds’ Category

EU law cuts off retail investors from the best investment opportunities

leave a comment »

If Soros or some other big investor has a clear idea on how to profit from buying, say, farmland in South America, he probably buys a chunk of land on his own account, then makes a fund to take on other big investors and, they play it out in profit from it in various degrees. The initiator of the idea profits both from allocation of proprietary capital and management of capital of other investors who are satisfied enough to have somebody to manage their investment properly.

However, for retail investors there is no way to profit. And for investment managers there is no legal way to offer such investment opportunity to retail investors. There is just no way to make an investment fund, eligible to retail investors, for strategies like described above. Such strategy falls under broadly defined alternative investment strategy. EU Directive 2011/61/EU (and its trasposing into national laws) allow retail funds to invest, effectively, only in listed securities, government bonds and bank deposits and money market instruments. Needless to say that those are investments with the most terrible risk metrics – from negative interest rates on government bond issues to casino like behaviour of the stock market in general.

Alternative investment strategies may be accommodated in specialized investment funds targeted to professional investors, but it is illegal to offer such funds to retail investors. Minimum investment should from €50k to €125k, depending on where the fund is domiciled. To achieve reasonable diversification, investor must have at least €1-2m to participate in more advanced, more rational and presumably more profitable investment opportunities. The average working person with €50k or less to invest just have no chance. He has available products from mainstream banks with ridiculously low at best or negative investment returns with some considerably profitable ones (needless to say, profitable by chance rather than virtue). Many countries, like Spain, does not even have legislation for specialized investment funds, just retail.

Written by A.S.

March 6, 2015 at 10:47 pm

Movie about old school trading

leave a comment »

trade.the.documentaryDigged up an old movie Trader – The Documentary about early days of Paul Tudor Jones. The first 40 minutes is a very illustrative example of how trading was done in 80’s (and continued till late 90’s). The movie is a kind of classic trading movie.

In those times the slippage and transaction costs were much higher than today even if adjusted for the “evils” of high frequency trading.

No copyright information. Probably was done as PR movie. Just google this for download: []trader.the.documentary.paul.tudor.jones

Written by A.S.

October 28, 2013 at 6:34 pm

How long it takes to launch a new investment fund in EU

leave a comment »

It should be around 5-6 months, providing that the founders and managers are acceptable to the regulators. It takes about 1 month to prepare documents for the regulator and they’re likely to use most of the 6 month period  allowed to them for decision to approve or deny licence.

It took us about 18 months. But we started at the very grass roots level and there were a lot of issues to consider, not least how to ensure client confidenciality. Most of our clients are based in Europe and the legislation is likely to change so that it is very difficult to market offshore funds in Europe. So the choice was to register the fund in Europe. The next decision to be made was in which country. Traditional fund domiciles like Ireland and Luxembourg were considered initially alongside with Switzerland. All of those are the highest cost countries for fund registration. Switzerland has an disadvantage of being outside European Union.

Our final choice was Malta for a number of reasons. It is EU country, the regulator is efficient (something we felt is true after the first meeting with the regulator there), business language is English and the registration costs are a fraction of what they would be in Ireland or Luxembourg. Malta currently is still a small, but the fastest growing fund domicile in EU.

There were thousands of email exchanges with prospective service providers (custodians, administrator, auditor, brokers …) and legal counsel. In typical situation this would be more simple, but in this case the fund principals did want to double-check every single detail themselves and a lot of time and effort was spent on understanding how even the slightest detail in the whole setup works.

I’m happy how it worked out this time — no mistakes were made, no cost overruns and no major delays (some minor delays were mostly due to the fact that big institutions sometimes are slow with new things). I believe the next time for the same people it would take 4-6 months to launch a new fund.

Written by A.S.

October 2, 2012 at 12:01 am

The most important in system trading. A billion dollar issue to some.

leave a comment »

On balance, hedge funds lost money in Y2011. As some restructured and some changed their modus operandi, one qoute I find particularly interesting as it highlights probably the most important single issue in system trading:

Managing Director [of D.E. Shaw] Anoop Prasad credited the gains to a toughened attitude toward the firm’s models. “We understand that alpha decays,” Prasad said. “We are unsentimental about eliminating models that have decayed or died”.

That’s it. Identify/use performing trading systems and phase out non-performing ones. The  article is here.

Written by A.S.

January 1, 2012 at 10:42 am