Fee Structure for Managed Trading

Discussion in 'Prop Firms' started by Jerry030, Jan 27, 2010.

  1. Jerry030


    Can anyone provide information or suggestions on where I can find information on the industry standards for fees paid to funds managers in hedge funds or just for generating trade signals for other people's money?

    Background: I'm a black box trading system developer. A small group with significant capital of their and access moderately large amounts of private money has approached me to provide trading signals and strategy for Forex and futures trading.

    Division of Labor: I provide signals and trade execution instructions to their high frequency servers. They execute trades as instructed on their funds and funds they acquire from private money.

    What kind of percent split on net returns should I look for?

    My risk is nothing as the signals are from my own prop trading system. They are risking their capital and have a hardware and software investment to make this happen.

    However, without my black box they are simply folks with significant capital looking for something to do with it.

    Any thoughts, suggestions or ideas on management and incentive fee structures would be appreciated.


  2. Are you trading the system yourself and , if so, what kind of monthly returns are you experiencing?

  3. Jerry030


    I hope to begin paper trading my own account in a couple of weeks and trading with live money after 50 to 60 paper trades if the metrics match out of sample testing.

    I don't want to go into exact characteristics except to say the gross W/L ratio in dollars is > 80% and the doubling time for total account capital trading the EUR/JPY at 10:1 is < 2 months.

    Would the exact profitability characteristics impact a fair fee structure?


  4. let x be their current rate of return
    let y be your rate of return
    ask for (y-x)/2
  5. A 2% management and 20% incentive fee is the standard fund fee structure, but for a newer fund, you should probably be running a 1-1.5% and 20% structure, especially in the current market environment.
  6. Jerry030


    Thanks...I like that formula, as the funds are not in the market at the moment so current return is likely fairly minimal!