Management Fees for a CTA

Let's say the account starts at 50K on the last day of the month. There was no money made in 1 day and hence the account closed the month at 50K as well. Now the opening balance for the next month is 50K and we pull lets say $100 in management fees. Again, this month, there was $0 made/lost for the client. The balance at the end of this month thus is $49900 after pulling the management fees. Now in this case, even though there was no money lost for the client, do we have to report the loss for the month as -0.20% which is $100/$50,000 (management fees)

 

Correct.

 

SO the CTA needs to make more than the management fees pulled in order to be profitable for the month?

 

yes, if you take in $100k in management fees for the year and make $100k in profits trading then you returned 0% for the year to the investor and you do not get to share in performance fees.

 

But ideally, using the first example, if you account value is at $51,000 and account balance after pulling management fees was $49,900, then you should be able to pull the incentive fees on $1100 and not $1000....right?

 

i don't believe so. but i'm not a CTA so i could be 100% wrong.

i'd imagine if it was in your disclosure document like that then yes, you could. but i don't know what the standard is.

hope someone can answer cause i am interested as well.

 

typical for commodites is 4% of the gross deducted quarterly

and 20% of profits deducted monthly

for stocks it is usually 2 and 20

there's an old high, in the example 50k, so after 1 month if account is 51k that's a 1k profit and the CTA gets $200, but on the quarter if the new high is 60K, then 1% of gross is deducted, so that's $600, so that leaves you with $59400, and you minus the old high from that to determine the CTA's profit.

also, usually the management fee is deducted first, so if you open an account with 50k on Sep 1, the very fist thing that happens is $500 gets deducted before the first trade is made, and it is prorated if you open later in the quarter.

But that is all if you are greasing the palms of the brokers who sell the fund.

Any CTA can work out his own deal.

Percentage of the gross is only for large accounts that are hard to move around.

50k if you are thinking about managing it, would be 30% of the profits and no percentage of the gross.

better deal if it's just you and one investor is a 50/50 partnership.
He loans the partnership 50k at interest, and you both split the profits, after you pay the interest on the loan 50/50.

 

2/20 is hard to get. Some will only pay 1/20. I've never heard of a CTA getting 4%.

 

so I've heard, they say the days of 2/20 are over, at least on Wall Street.

keep in mind, this was the way it was many years ago, but yes 4% of the gross and 20% of the poifits was standard for the guys that traded corn, beans and silver.

there was a big guy that would have a stable of traders, and the brokers went to him and looked over the accounts, and then went out and sold them to clients.

to be honest with you, I don't how much of that 4% the trader actually got, it was split up many ways.

 

1) With "small" accounts, there should be no management fee. You would want a "large" profit split, i.e. 40% to 50%, instead.
2) You ought to be nimble enough to generate outsized returns to justify the profit-split, i.e. the incentive fee.