Canadian_Accountant Wrote: ------------------------------------------------------- > ksc1940 Wrote: > -------------------------------------------------- > ----- > > I personally don’t think friend A really knows > > what he’s doing, which is why he’s resorting to > > this bizarre compensation scheme and is willing > to > > give me almost total control over the daily > > operations of the fund. > > Don’t you find this unethical? > > You would be taking on the responsibility of > managing a fund that is voluntarily starting at > -20% without any plan (outside of hiring you) to > get it back. > > You should tell friend A to pull his head out of > his ass and give the capital back to his clients. > Is he from some super loaded family? Are you not > worried about his future when he pisses all the > money his friends and family invested in him? Why would he be worried? You can always explain venture failings on a resume. It’s not as if he founded the firm.
I understand that. If friend A really is a friend I think he should be looking beyond his own personal interest. Option A has a blatant disregard for both a) his friend, b) the clients and I think a very strong case could be made for it being an unethical option.
Viceroy Wrote: ------------------------------------------------------- > ^^^ > Oh, I don’t know this classic scam. Can you > explain ? > > If it’s really “upfront”, where can be the scam ? A variation of the Advance Fee Scam. Good I spotted it before someone loses his/her hard-earned money.
Canadian_Accountant Wrote: ------------------------------------------------------- > I understand that. If friend A really is a friend > I think he should be looking beyond his own > personal interest. Option A has a blatant > disregard for both a) his friend, b) the clients > and I think a very strong case could be made for > it being an unethical option. No, my friend does have a plan. I’m obviously not going to discuss strategy here. His primary experience is in bulge bracket banking, so he knows a lot about analyzing balance sheets while my expertise is in trading, risk management, macroeconomy. He will give me a lot of discretion in generating trading ideas and strategy, but he will have the final say of course. Regarding the capital, the money is not from investors but from good family friends who are giving him the money as a gift. I could totally understand why people think option A is absurd. But the guy wants to hire a few of his friends who are smart, experienced, and trustworthy and try to build something from the ground up. I’m pretty sick and tired of my current job, so taking a risk is not something I’m opposed to. However, my group is doing reasonably well this year, so I’m gonna wait till february to see what my bonus numbers are. If it’s a good number, I might stay; otherwise, I’ll probably jump ship. And I also plan on taking the CFA and doing a part-time booth MBA to help me achieve my career goals.
ahhh, cool. Ya, some of my assumptions were clearly off then.
bump
ksc1940 Wrote: ------------------------------------------------------- > Canadian_Accountant Wrote: > -------------------------------------------------- > ----- > > I understand that. If friend A really is a > friend > > I think he should be looking beyond his own > > personal interest. Option A has a blatant > > disregard for both a) his friend, b) the > clients > > and I think a very strong case could be made > for > > it being an unethical option. > > > No, my friend does have a plan. I’m obviously not > going to discuss strategy here. His primary > experience is in bulge bracket banking, so he > knows a lot about analyzing balance sheets while > my expertise is in trading, risk management, > macroeconomy. He will give me a lot of discretion > in generating trading ideas and strategy, but he > will have the final say of course. > > Regarding the capital, the money is not from > investors but from good family friends who are > giving him the money as a gift. > > I could totally understand why people think option > A is absurd. But the guy wants to hire a few of > his friends who are smart, experienced, and > trustworthy and try to build something from the > ground up. I’m pretty sick and tired of my current > job, so taking a risk is not something I’m opposed > to. However, my group is doing reasonably well > this year, so I’m gonna wait till february to see > what my bonus numbers are. If it’s a good number, > I might stay; otherwise, I’ll probably jump ship. > And I also plan on taking the CFA and doing a > part-time booth MBA to help me achieve my career > goals. Can you explain in broad outline terms how you think your friend’s plan might work? Fund A has $2.5m AUM. What is the fee structure? If you pay $500k in remuneration plus other overheads (let’s say $125k) then you have a total expense ratio of 25%. You will need a 33.3% return in year one just to break even. How can that possibly be viable? If this guy got a gift of $2.5m then in my opinion he should invest it or enjoy it. The current plan as you have outlined it appears to be to squander it which is why some people have already questioned whether it is fully ethical.
Presume the plan would be to try to raise more assets from externals - perhaps using a 3PM
The real question is what is the outlook for asset growth. Since we know literally nothing about your friend, her/his connections or the strategy, it is very difficult to assess whether you will be able to meaningfully increase AUM, which is what this plan is really gambling on. Is s/he planning on hiring any marketing staff or employing a third party? You are definitely walking a bit of a tightrope given expenses/initial investment, but many boutiques are started that way. Is there a possibility for further financing if things take a little longer than planned to get moving? These are important questions.
Incidentally aspiring financial analysts, what’s the NPV of the cash flows? Option A: 100k (tax free lump sum?). Let me grab my calculator… Option B: Considerably less that especially as cash flows for B will certainly be taxed He should clearly go for option A, hope it blows up after a month (possibly even help them on their way) and take up option B. QED
Actually, it seems like he should take option A and the $100k up front. Then, he should make an insane 100x leveraged bet. If the trade turns out well, he can pocket a portion of the substantial gains. If the trade blows up, then he can quit and leave friend A with a multi-million dollar margin call. Then, join friend B.
Dude_CFA Wrote: ------------------------------------------------------- > Incidentally aspiring financial analysts, what’s > the NPV of the cash flows? > > Option A: 100k (tax free lump sum?). Let me grab > my calculator… > Option B: Considerably less that especially as > cash flows for B will certainly be taxed > > He should clearly go for option A, hope it blows > up after a month (possibly even help them on their > way) and take up option B. > > QED Pretty sure I would still need to pay taxes on option A. I would need to file an IRS form, not the w-2 but something else.
ohai Wrote: ------------------------------------------------------- > Actually, it seems like he should take option A > and the $100k up front. Then, he should make an > insane 100x leveraged bet. If the trade turns out > well, he can pocket a portion of the substantial > gains. If the trade blows up, then he can quit and > leave friend A with a multi-million dollar margin > call. Then, join friend B. Hhahahaa nice.
ohai Wrote: ------------------------------------------------------- > Actually, it seems like he should take option A > and the $100k up front. Then, he should make an > insane 100x leveraged bet. If the trade turns out > well, he can pocket a portion of the substantial > gains. If the trade blows up, then he can quit and > leave friend A with a multi-million dollar margin > call. Then, join friend B. Don’t think they would be friends anymore, lol.
the OP is avoiding questions and comments made by Carson, greengrapes and ohai. These posts are great once in a while. Gives me the laughs!!!