I am not the Entrepreneur here, my husband is. But I am very wary of this idea, but I am in general an extremely cautious and anxious person so my concerns may not be warranted. I also have 0 understanding of stocks or the financial market.
Long story short, my husband has a friend who is worth about 3-4 million dollars. He use to own a company (that my husband worked for - that’s how they met) and the company was bought out a couple years ago. His friend got a payout from the sale (my husband did as well, but not as much).
This friend is really into stocks. This friend created a trading strategy that is apparently really good. He invested $1 million at the beginning of the year and has seen 50% returns with his strategy so now has $1.5 mill in this investment.
My husband is a software developer and very good at his job. This friend wants him to automate these trading strategies, which my husband has been working on for a few months.
They basically want to register this fund as a business so that 1) my husband can be part of it and invest money and 2) some family and friends can invest money. However, I do know that they want to keep the fund small (so only a few family and friends can invest) as apparently the trading strategies work best with less money. They do not want outside investors.
My husband will be a co-owner of the business. He also has a full time job which he will keep. This is not meant to be something that we live off of. More of a side project for extra cash.
My husband doesn’t have any money in this fund and won’t invest any of the money earned from our jobs. I am just very risk-averse lol. But this friend will pay him for his work and half of what he pays him will be invested back into the fund under my husband’s name.
Start-up costs are paid for by the friend.
They have a lawyer who is going through everything with them, drafting up necessary documents, etc. Laywer is paid for by the friend.
I am very hesitant about this business as I heard being a hedge fund manager is very risky and can open you up to a lot of legal problems. I also don’t want to lose money and hedge funds are, in general, quite risky.
What are your thoughts on this arrangement?
Husband is 27 and the friend is 30 or 31.
I think they’re going to need many more systems. I’ve built many trading systems. I used Amibroker and MT4. Let’s say you make a system that averages 50% return. Some months it goes up and some months it goes down. Some years it goes up, some years it goes down. A trading system exploits an inefficiency in the market. The more money trading that system, the more efficient (and less profitable) the market becomes. No system wins forever. They should look into hiring more coders and brainstorming more system ideas. Howard Bandy says to write code that asks the market a question and then use the answer to build a system. That’s a good route, tell them read Bandys books. Building a company on one system seems naive.