Let's say, after wins and losses, you make between 5% and 10% a year on your trading account. Maybe 25%. I know, it's not 'super trader' but still, you are making a living (or at least making some money doing what you want to do). Somebody comes along and says, "I'll give you $100,000,000 to trade for me. You take 2% management fee off the top, and 20% of the profits you make trading. I keep 80% of the profits. In addition, the 'account money' will pay for audits, legal expenses and other reasonable 'operation' fees." My question is, how can you justify taking such a small cut of the profits when you are used to keeping 100% (besides paying taxes) on the money you make trading your own private account? (of course, this pay arrangement is from an industry starndard hedge fund structure.) I'd like to hear from both private and institutional traders on this matter. I've been having a hard time with the concept of giving 80% of my hard-earned profits away. I'd like to know what the rational is for successful traders to do this. thanks. Saham
Because I am assuming you don't have $100,000,000 to trade with. 20 and 2% of 100,000,000 is a lot more that 100% of say $1,000,000. Pretty self explanatory i would have thought? It's like a fund I have some money in - the fund manager was a great trader, probably making a couple mil a year on his own. He started a fund that is up 25% this year and has $300,000,000 now under management - why do you think he did this - because he ends up making a lot more, yet he didn't have $300,000,000 of his own to trade!
I would do it. You trading a much bigger account, that means you have a lot more leverage. It may be easy for some trader to turn 100k into 200k or even 500k in a year. If they have a 100 mil account, it's not easy to get the return as a 100k account. Assume he is really good, he make a kill with 50% return. That's 50mil, with 20% fee, that's 10mil already. Much more than 400k on a smaller account. And beside, he gets a 2% of the account rather or not he perform. That's 2mil on a 100mil account, even if he has the money sitting on a money market account. I will take an job like that any day.
what I still don't understand is, who set the splits? 2%? why 2%? 20% why 20%? why not more? I mean, the "investors" do 100% nothing. It is the trader's job 100% to bust his arse working in the markets racking his mind researching the next good trade X 100s and 1000s of hours. all while the good investors kick back at the beach and drink wine coolers. It doesn't seem fair. It doesn't seem like a fair split. who set these numbers, anyway? If 2% fee is good, then 10% is better. 20% fee even better. and as far as splitting the profits?? 80/20? WTF? why not 50/50? who the hell is setting these numbers?
100% nothing - are you taking the piss? They are 100% putting THEIR money at risk. Yes some of the seriously well performing funds will charge more than 20% but 20 and 2 seems to be the norm. And by the way I think on most funds the 2% is only charged if they make money.
Hello, You want to be money? 5-10% a year isn't money Considering RISK FREE cds a re up to 5% right now SAVINGS account are up to 4% emigrantd If you want to charge more you need to be MONEY! At least have a return above 15% 20% the better, If you can return 20% or 18% , With low drawdown which is KEY You can charge 50% of profits no problem, thats only if you go above the normal 5% interest rate people get from their savings account. You can bring in great returns with LOW risk (the key) you can charge anything you want!
Iy you're a successful trader and confident in your abilities you take x% of assets with a high water mark that you and the client agree on. If you don't hit the high water mark you get nothing.
I do not know why you keep asking for this, Because if you are good, Any PRO firm will lend you money just bring $50k $100k Thats it. Once they see you are consistent you might get access to millions and they'll only take maybe 5-10% off your profits. although 5-10% , They'll think you are putting it into emigrantdirect with kickbacks from the manager
The simple answer is that because this is how the hedge fund industry works. If you won't do it at 2/20 (which, is already a bit on the high side for a $100M block), the next person with a similar strategy and return will, it is that simple. There is never any concept of "fairness", just a standard auction market, that's all. Price is determined exactly by how much the market is willing to pay. In fact, for a startup hedge fund a bit desparate for investors, it is fairly common for the institution investors to push it to 1/15 or even lower (.5 / 15), because in that case the institutions will have all the negotiating leverage. Naturally, top hedge funds can impose their own pricing due to high demand and little supply (capacity issues), so SAC charges I believe a (0 / 50), etc. In a way, this is exactly like trading or playing poker, everyone would squeeze the "fresh meat". It is how the industry works, no one is in it for charity.
the problem with that is, they get to see your trading system - every trade you make. they watch you trade. your system is 100% compromised. you want that? I know I don't.