Turnkey Trading Partners (“Turnkey”) is one of the largest CTA start-up consulting firms in the country. For the better part of the last decade we have established three to five managers per month. During that period of time we have seen both good and bad outcomes.  Over time, our staff has learned from some of the best in the industry with respect to what commodity trading adviser (“CTA”) and Commodity Pool Operator (“CPO”) investors are looking for.  We often share these perspectives with the CTAs and CPOs that we start-up to better prepare them for raising capital.

Recently, Turnkey founder James Bibbings spoke with Bryan Johnson about his CTA and CPO marketing business.  Like Bibbings, Johnson has been featured at some of the industry’s biggest and best conferences.  Perhaps more importantly, the following excerpt aligns with what Turnkey has witnessed with its CTA and CPO clients looking to raise capital. If you are looking to start-up a CTA or CPO your first call should be to Turnkey to determine the most appropriate and cost effective way to accomplish your goals. After speaking with Turnkey you might then consider contacting Johnson & Company to learn more about what they have to offer CTAs and CPOs looking to revitalize their marketing efforts.

Excerpted From: De-Capitated: The Downsizing of Cap Intro

…Regulatory change has precipitated new capital rules that have deeply impacted prime brokerage operations and cap-intro directly. Prime brokers are increasingly resource-constrained but still presented with the daily challenges of optimally supporting a highly demanding client base in the relentless pursuit of ALPHA. The new regulatory requirements leave prime brokers with a more restrictive balance sheet. Consequently, they are employing higher selectivity in client acquisition to focus on clients that drive the most profitable revenue opportunities…

…Redemptions and lack of growth in new assets beyond the top largest funds have characterized the hedge fund space for a considerable time. As a result, hedge fund mortality, as evidenced by data released by Goldman Sachs prime brokerage, is catastrophic. Of the 468 U.S. hedge funds that have used Goldman’s prime brokerage services since 2009, almost half are out of business. The majority closed within their first three years, according to the bank’s report, published in January 2019. As such, PBs are concentrating resources on their top 100 clients and smaller funds are being “fired”, as they are not growing AUM and proving too costly to service…

…The primary victims of cap-intro retrenchment have been sub-institutional funds: New and smaller funds with AUM less than $100 million. In fact, recent data from the Alternative Investment Management Association (AIMA) reveals only 4% of funds with less than $100 million AUM received their last allocation via cap-intro sources. (Source: AIMA – Making it Big – Charting the evolution of the billion dollar hedge fund). The data further illustrates that the majority of sub-institutional funds do not generate enough revenue to merit cap-intro attention…Given these realities, virtually all of the smallest sub-institutional funds (less than $25 million AUM) are neglected by cap intro teams.

…The capital raising climate for smaller sub-institutional funds will reflect fewer prime broker resources, little support from cap intro teams, less leverage with investors and allocators, persistent fee compression, a broadening menu of “liquid and cheaper” investment options, overly-invasive manager evaluation, hyper-stringent fund selection and protracted allocation cycles, all contributing to heightened difficulty raising assets. Successfully raising assets will require the smallest sub-institutional funds to have an acute understanding of marketing in a more rigorous climate and crystal clear clarity as to the appropriate capital raising options given the manager/fund profile. Pointedly, the smallest sub-institutional funds must be more informed, adept and intelligent about marketing. Any expectation of significant assistance raising assets from external sources such as cap-intro by the smallest sub-institutional funds is unrealistic…

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