The Pros and Cons of Managing a Hedge Fund

MAKsCap Investor Letter

At the beginning of 2024, I started a fund to trade other people’s money. For those who may be interested in doing something similar, what you’ll find out is that you do not have to be registered if your fund is considered a Small Pool.

Per the CFTC, a “small pool” exemption exists for Commodity Pool Operators (CPOs) who have no more than 15 investors and less than $400,000 of pooled capital. [CFTC Rule 4.13(a)(2)]

Here’s what I learned from the experience…

The Good

There’s an added level of responsibility (or at least there should be) when you’re risking not just your own money but other people’s. I didn’t take it lightly that my investors placed their money in my care. This led to trading a bit more conservatively than I would in my own accounts. Since I tend toward the more aggressive side of the trading spectrum, I found that bit of balance very helpful.

I also really enjoyed the idea of taking a skill that I’ve cultivated in my own life and sharing its benefits with others. Some of my investors have tried their hand at trading, and either didn’t enjoy it or didn’t find much success. So, my fund was a way for them to still be involved in the financial marketplace without having to make the decisions or manage it themselves.

The Not So Good

One aspect of running a business that I’ve never enjoyed much is sales and marketing. While I’ve done it enough over the last 18 years as an entrepreneur to have found a certain level of success, it’s not something I necessarily enjoy.

When I started the fund, I found myself in the same position of needing to ask people for money which is exactly what I wanted to get away from doing in the other areas of my business. One of the things I love about trading is that I don’t need to sell anything to anyone (other than when I’m shorting). 😉

I’m not someone who came to trading with a war chest of money to risk. So one of the goals in starting the fund was to simply have more capital so I could match what I was doing in my funded accounts. Unfortunately, it didn’t work out that way because I ended up getting much less initial investment than I’d wanted (Ok, needed), but because I’m all for giving things a shot, I decided to go for it anyway.

This turned out to create an even more challenging trading environment as I was limited by margin requirements and couldn’t trade the same setups that make me consistently profitable in my other accounts.

While I did start out the year profitable for the fund, it ultimately wasn’t sustainable, and I ended up losing overall in Q4. Because this whole thing was an experiment—and the investors knew that going into it—I decided to cover the loss and return their initial investments. So, for them, it was a break-even experiment. For me, it’s something that I wouldn’t pursue again unless I were starting from a much different position in terms of initial capital.

As I close out this experience, I have a ton of gratitude for those who trusted me with their money. Also for the lessons I learned along the way. For now, I’ll focus on trading my own accounts. Plus, continue to teach and share my trading journey through The Daily Rage and Mental Capital.