Hello, Can anyone please recommend any reasonably priced commercially available software for calculating management & incentive fees? Many thanks Jtrader
Does anyone know whether this kind of software is commercially available, or is this normally just inhouse custom made? Many thanks for any replies. JTrader
just create an excel spreadsheet with if then functions to calculate the fees based upon your critera. It is pretty easy to calculate performance based fees using excel.
Thanks traderaaa, Can anyone please confirm how management & incentive fees are typically calculated? For example with a 2% annual management and a 20% incentive on a $300K account, is the 2% annual management fee amortised over the year at $6000, then paid $1,500 each quarter, or is the fee based on the balance at the end of each quarter? Similar question on the incentive fee: Is this normally calculated as 20% of new profits as measured at the end of each quarter? Thanks in advance for any comments. Best regards JTrader
fees are always billed in arrears. If your terms are 2 and 20 paid quarterly then you will receive 2% annualized of the total assets as measured on the final day of the quarter and 20% of net new profits or however you are arranging that. Remember that perfomrnace fees are after the management fee has been deducted so you don't bill for money that isn't there.
How fees are calculated really depends on what is in your offering documents. Ask your lawyers and accountants/auditor.
The fee calulations are like much else - sound easy but the devil is in the detail. I have seen many many different scenarios, 2 and 20 is pretty standard, 2% on total amount managed - leverage included usually to take you to a notional amount of assets managed. Then the 20% can come pre or post the 2%, and is subject to a highwatermark, which are almost always set in stone although i have seen managers try and reset these every year. if several strategies are being run, fees are usually netted between them, and management on the total. they are usually paid quarterly but accrue monthly, so only monthly new highs are paid out on. other things to consider are money added after the initial investment, and what happens to incentive fees on additions of capital from an investor if the allocation has dropped due to performance. it would be best to hammer out these details early, and with a lawyer...!
Thanks for the informative replies, very helpful. Getting back to my original question: Can anyone recommend any commercially available software packages which can be customised to handle these fees? Ideally I'd also use the software for creating equity logs / performance reporting for my investors. Thanks for any ideas. Jtrader
Let me see if I have this right? So if you started a fund with $100M and at the end of the year the fund stood at $150M and had 2/20 annualized fee structure then: Management fee would be: $2M Perf. Fee would be: (50-2)* .20 = $9.6M Return to investors: 40.4%???? Is that correct, assuming no new investmests during the year?
Basically, but depending on the structure. You may have high water marks, hurdles, etc. and fees are generally not billed at the end of the year like in your example. Use a quarterly performance: $100 million fund 2/20 assuming we are above any high water marks. 5% return for quarter before fees. total assets at end of quarter are $105 million ($100 million *1.05). .005 (.02/4 quarters) *$105 million = $525,000. 20% of $4,475,000 ($5 million -$525,000) = $895,000 total return after fees for quarter = 3.58%