The Quick List

From time to time, I'll be putting up a "quick list" of helpful links, definitions, or things I think are or may be useful. It's sort of like a public rememberall. Yes, I just quoted Harry Potter. No, I don't have all the unabridged books on tape on my iPod (... yes I do).

Federal Employer Identification Number
You can apply for this before you file any LLC, LP, or Corporation papers. It'll let you get a business credit card, employees (if you can afford them), or other government perks like paying taxes. Here's the online application link. Applying for an EIN is totally free.

Massachussets Limited Liability Company
Since I'm Boston based, I only know about it in MA, but most state divisions of corporation can file online now! This is great, since it saves in lawyers fees for setting up an LLC, and sometimes even more complicated entities (which translates to $3,000 more in my pocket). Here's the application link. Cost of setup in MA is $500.

American Express Small Business Card
In my opinion, AmEx is the best. They force you to pay your card off every month before making new purchases. This doesn't save you from running up big bills, but it does save you from running bills if you're delinquent. If anyone knows of any local credit card companies, specifically in MA for me, or elsewhere, I prefer supporting local community if I can (within reason). Go here for more information on AmEx business cards. Applying is free, acceptance is priceless (except for the finance charges and annual fee).

Business Cards from GreenerPrinter.com
GreenerPrinter was great to work with. They're based in Berkeley, CA (I used to live there), and have excellent quality recycled cards. I paid about $120 for a rush job on 500 business cards, and they were there a day early and perfectly done. Website is here, check it out.

Delaware Limited Partnership
I'm working on this part, and this will be the actual fund for limited partners to invest in. I'll be working with a lawyer for this, but Delaware has very favorable tax law on LPs, so most every domestic hedge fund is based out of Delaware. You can reserve your LP name online at the Delaware department of Corporations here. Reservation fee is $99, I'll let you know how much it is to file when I get there.

Much more to come, like the Term Sheet, Offering Memorandum, and how I actually did some of this stuff.

The Urinal Pitch

So forget about paperwork and administrivia - I need to work on my pitch. And it needs to be short enough so I can explain what I do to an institutional finance board member who's peeing in the stall next to me at the next Gogol Bordello show. Obviously, a likely scenario I need to be prepared for.

What I really do is pretty simple, so let's start simple.

"I use studies on global consumption and carbon output to go long and short global indexes, currencies, green energy, technology, and socially responsible assets. The fund is designed entirely to mitigate risk using the 30 day VIX (S&P 500 volatility measure) and the 30 day VXN (Nasdaq Composite volatility measure). I use fundamental analysis on a macro level, and technical analysis on the micro level."

Um. Ok, so it sounds complicated, but it's really simple. So let's start with some definitions and see if I can work that into something... sayable.

What I'm really doing is looking at two universes. 1.) What I define as a green investment, and 2.) What investors think about the next 30 days in the market. I've defined green more broadly than most. I do it for a few reasons, but the primary is diversification. The secondary reason is that I think I'm right and analysts are narrow minded. That's right, I'm a cocky jerk. Surprise!

But really, green is far more than just individual energy and technology stocks. Green, like everything else, is political, academic, controversial, and above all, a mindset. For example, Brazil does an awesome job of destroying its own rain forests. They are like superhero rain forest chopper downers. But, Brazil is the world leader in Ethanol use, and is far more sustainable as an economy than the United States. So is Brazil "green"? This is where I developed some metrics and scoring systems to decide who is green and who isn't on a macro level (currency and industry).

So that leads us to what investors think. Really, what drives market prices more than what people think? And what is a better indicator of what people think than forward looking volatility? Institutions or retail investors alike make daily bets on how volatile the market will be 30 days from now. Basically, they are betting on a combination of factors: media, fear, market cycles, and personal instinct. So they're doing my work for me! They are telling me that the market is scary or the market is OK. The only trick is to figure out a way to measure how scary or how OK.

When I combine these two things, I get my model and my fund. And I can say:

"I manage a green hedge fund. I use metrics in green industry, sustainable capitalist practices, and market volatility to make long and short investments in a select green asset pool. The fund emphasizes profitability and sustainability while reducing market risk."

Better? Comments? Am I overreaching, a moron, or am I a genius? My vote is always on genius, but it can't hurt to ask.

So Many Options, So Little Money...

So I've done a fair amount of research, and there seem to be basically three ways to set up a fund. Two of them are very very expensive.

Mutual Funds

Mutual Funds are subject to a lot of regulation. Not to mention the rules to running the fund. For instance, mutual funds cannot have a 20% position in a single stock. They are registered with the S.E.C., which is an expensive ongoing cost. Mutual fund fees are carefully regulated, and the market is flooded. Frankly, who the hell wants to report to the government on an ongoing basis? The Investment Act of 1944 is probably the best intentioned piece of legislation the finance world has. It's intentions are soooo good, and yet, somehow, it's managed to put all the money at the top and give none of it to me. Way to go government.

Managed Accounts

Another expensive, heavily regulated path to take, managed accounts allow for a much greater allocation freedom with all the burdens of a mutual fund. The trade off is the selling minimums are typically higher, and the accounting costs eat into investor profits in a massive way. There is no accredited regulation, though, so average joes can buy this if they can afford the minimums. I've considered this carefully, since I think my demographic is farmer's market shopping hipster yuppies ages 25 to 40. Sort of like a sitcom. The problem is cost: I'm broke. So, I'm left with the cheapest option with the most freedom.

Hedge Funds

Hedge Funds are basically investment manager playgrounds. Most managers use high amounts of leverage, complicated math and/or "black box" magic to invest in vast combinations of assets in a vast amount of markets all over the globe. They do this because hedge funds are virtually unregulated money making machines.

Unregulated you say? Well, sort of regulated.

For instance, as a hedge fund, I cannot advertise. To anyone. Ever. Now that's a restriction that's tough to beat. So instead, everyone just does it behind the SEC's back. I know, I was a financial adviser professionally. Fund managers all advertise in covert ways - like "leaks" and "broker dealer only" material. Handing out a leaflet that is designed for a client but says broker dealer only and offering a sales trail of 2%+ per year, and you don't think the advisers and B/D's have a conflict of interest?

Money making machine you say? Well, they make money for someone at least.

Only they don't necessarily make the investor money, they usually make themselves and their brokers a killing in management and brokerage fees. Honestly, it's ugly. You have to wonder what, exactly, does that 0.25% annual "administrative" fee go towards? Especially in funds with over $500M under management. That's $1.25M in administration!!! Maybe they give a break to institutions, but on the retail side, even the millionaires get screwed. I guess morally it does feel better to take ridiculous fees from monocle wearing millionaires with pink poodles riding Falabella horses.

Even though it can be a sleazy world, unregulated means one thing to me: cheap entry.