Design Guidelines for Fund Structure in Capital Persistence Strategy

It is February 12, 2026, evening.

Today, I reflected on some pre-live trading considerations regarding the Capital Persistence Strategy and wanted to share my thoughts with everyone.

Authorize Cash Flow, Not Capital

This will be an entirely new financing system. The new fund will be completely different from traditional financing methods. It will require investors to authorize a fixed cash flow rate, for example, 1 USD per day. The fund manager will aggregate all investors' authorized cash flows to form a total cash flow, which determines the position size for each trading signal.

Determine Profit Distribution Based on Authorized Cash Flow

Investors' profit distributions will be directly linked to their authorized cash flow, not to the fund's total assets. After each profit-taking event, investors will receive returns proportional to their authorized cash flow.

For example, suppose there are two investors: Investor A authorizes 1 USD per day, and Investor B authorizes 2 USD per day. Then, Investor A's authorized cash flow accounts for 1/3 of the total authorized cash flow, while Investor B's accounts for 2/3. After each profit-taking event, Investor A will receive 1/3 of the total returns, and Investor B will receive 2/3.

This method is fair.

No Management Fees

The fund will no longer require investors to make a large one-time capital contribution, and therefore, it will no longer charge management fees based on assets under management (AUM). We believe that charging management fees based on AUM creates a misalignment of interests between the fund manager and investors. The fund manager would naturally desire investors to contribute more capital to generate higher management fee income, which, to some extent, inherently encourages a conservative approach and prevents maximizing the potential of the trading signals.

I mentioned this point in Conflicts of Interest in the Fund Industry.

No Performance Fees

The formula of the Capital Persistence Strategy dictates that, for investors, the capital recovered upon profit-taking significantly impacts the final net value of the investor. Therefore, charging performance fees upon profit-taking would directly reduce investor returns. This could lead to situations where investors incur losses while the fund manager profits, which is something we want to avoid.

So, does the fund operate on goodwill? Not exactly. We will appropriately widen the actual profit-taking multiplier. For instance, originally, profit-taking would occur at 2x, but we will execute it at 2.2x. The remaining 0.2x becomes the fund manager's revenue. This way, investor returns are not directly deducted as performance fees.

Investors will bear a slight opportunity cost. For example, a scenario that would have triggered profit-taking might be missed due to the widened multiplier, potentially reducing the number of profit-taking events from, say, 20 to 18 per year. This is the investor's opportunity cost. However, this cost is relatively elastic. Moreover, this cost should be calculated during the backtesting phase and be fully transparent to investors during fundraising. This also helps investors better understand the risk and return characteristics of the investment strategy, achieving a "what you see is what you get" principle.

No High-Water Mark for Performance Fees

Traditional funds often set a high-water mark, where performance fees are only charged when the investor's net value exceeds the previous peak. In the Capital Persistence Strategy system, we do not need to set a high-water mark because its purpose is to protect investor interests. In Capital Persistence, investor interests are already safeguarded through the authorized cash flow mechanism. Investor returns are directly linked to their authorized cash flow, not to the fund's total assets. Therefore, setting a high-water mark is unnecessary for the Capital Persistence Strategy.

After each profit-taking event, investors receive returns directly without waiting for the net value to surpass a previous high. This method is more straightforward. Investors can choose to continue authorizing cash flow or stop after profit-taking, entirely at their discretion.

Future Integration with EA to Form an Investment Loop

Since investors authorize cash flow rather than making a one-time capital contribution, it is not practical to ask investors daily whether they wish to continue authorizing cash flow. We need an automated system to manage investors' authorized cash flow. We will refer to this as pre-funding. However, in practice, the balance in the pre-funded account is mostly idle. This capital efficiency should not be wasted and should be utilized.

Furthermore, after profit-taking in the Persistence Strategy, the funds can be recovered and transferred to EA to earn a current account (demand deposit) yield.

We will integrate with EA, providing an interface that allows investors to authorize cash flow directly through EA. This way, investors' balances can also benefit from EA's yield. EA can essentially function as a banking platform. Investors can conveniently combine EA's returns with the cash flow consumption from the Persistence Strategy to plan a cash flow-based investment strategy.

I had a concept for this in Power Generation & Consumption.