The 3 Faces of Every Fund Manager

05/28/2012 8:30 am EST


Mark Ruddy, Esq.

, Ruddy Law Office, PLLC

Traders who start their own fund have to master not only trading, says lawyer Mark Ruddy, but also marketing and compliance functions that are just as critical to their fund's success.

We're here with Mark Ruddy, and we're going to talk about what it takes and what to consider when we first step out and start trading for a living. 

I always tell people who are starting out that it's a three-legged stool. Marketing is going to be one leg; trading is a second; and back-office operations are going to be the third leg. A successful person starting up on their own has to be great at all three legs, and it's not an easy thing to do. 

We set up funds; dozens upon dozens every year, and we will find that some people are great at marketing.  Some maybe have a great track record at trading, but they simply can't raise the money. Some can sell and trade, but when someone comes to do due diligence on their back-office operations, they see that it's just a total mess.

Compliance has gotten really tough, and so the back office becomes a really compelling part of this with the new legislation, right?

Yes, Dodd-Frank. It took a while for the regulators to get it going, but it has kicked in. They have been enacting rules lately on both the securities and the commodity side.

On the securities side, just recently, they have increased the net worth standard. If you are a registered investment advisor, you can charge fees to an investor, so people have to have a higher net worth than they did just a few months ago.

On the commodity side, there was an exemption from registration, called 4.13A4, and it allowed a lot of funds to operate totally without registration. 

The CFTC has said they were repealing that exemption. Any fund claiming that exemption has to stop claiming it by the end of this year, December 31, 2012.

I would imagine that would get tight. I know that the CFTC tends to work as sort of the younger brother to the SEC in some of this regulation. Now they are starting to ramp up their compliance efforts as well.

They are, and it's true. You mentioned the big brother, little brother type thing. With Dodd-Frank, the regulators have to level the playing field, and they have to work together to make sure that traders don't regulatory shop. 

Sometimes they may go to one regulator and not another, because they found the regulation to be a little less onerous, and you can't do that anymore. But that also means that the SEC and the CFTC have to work together, and it hasn't always gone smoothly.

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