and then when they first invest, before the first trade is ever made they pay the percentage of the gross (prorated depending on where it is in the quarter) and that's how you pay the salesman. So everybody starts out 1% down.
Not quite. I for one don't charge a management fee. Anything going to the salesman comes out of the tail, performance-only fees I take out end of quarter.
Correct, I am planning on running what heech is....0/30. No management fee, 30% performance fee paid quarterly with high water mark obviously. And the reason I am asking these accounting questions is for reporting my performance adjusting for a performance fee. Making sure within the NFA/CFTC guidelines.
hey man, I'm just telling you how it was in the old days, 4% of the gross deducted quarterly (1% a quarter) and 20% of the profits deducted monthly. That was for commodity accounts. Most of these were sold by brokers so they got a cut of the commissions. My company paid 50% of the first quarter fee, so there was a big push to get an account four times a year. The funny thing was, if you had a client who wanted to get in in June, you would tell him, "I think there will be a better, good opportunity in July. Let's hold off, a few weeks, nothing wrong with being in cash."
So far at least, this is what I've done for almost 3 years now. I've never been challenged or had my numbers audited yet... but my third-party admin (whom primarily works with SEC-regulated hedge funds) also generates performance numbers this way.
the quarterly percentage of the gross came about when these few guys that were consistently profitable figured out they couldn't trade they way they did when their accounts became big the same way they could when they were small. 30% of the profits were a new thing back then that pure stock traders offered. Not many of them made it. For one thing, no salesman wanted to sell a buy and hold strategy because we got paid on the commissions. It was all small potatoes back then, clients were just guys who owned businesses like car dealerships and hardware stores. Doctors were the best because they just didn't want to be bothered with the details.
Salesmen, TPM and other "capital introductions" can get paid either by working out a deal with the PM for a % of the performance fee or they are a FOF who will charge a fee on top on the back end.
Just to clarify, this wouldn't make a difference in the standard reporting format. Even if you only bill client accounts on a quarterly basis, the fees are applied monthly for reporting purposes. Typically, monthly returns will be calculated on a time weighted basis, marked to market at month end. The result is that if you bill quarterly, the client actually sees a higher return than is stated in the performance capsule.