Reasonable revenue split as trader

Hi all, I have just agreed with a local asset manager to run a CTA strategy for them. I have developed the trading system and responsible for order execution, but all the rest (risk managment, compliance, legal, backoffice) etc. are on their side. I don't take any financial risk. They have offered me 10% on net returns at fund level, is this reasonable?

 

I wouldn't do it for less than 35%. 10% is quite low but it depends what you're offering and what are your qualifications.

 

It's a CTA strategy which is expected to return 40% annualized gross, I've been running quant strategies since 2012 with my own RIA firm, PhD but no finance professional qualifications or Wall St experience...

 

six years is not really long in finance ...

 

Ok, what's your reply to my question with this in mind?

 

I think experience is much more relevant than education but I might have bias. With that in mind and the 40% gross, 25% is more likely to be the ceiling.

 

IMO, 35% is unreasonable for this set up. If you were the CTA you would likely not get more than 2/20, 1/25 or 0/30. And that would require all the work and expense they incur. I would ask for 15% but not sign any contract that does not allow you to offer the same strategy for outside investors. If you can only get 10%, you have decide what you can do on your own. Costs about $15K to form the CTA, then you need to pay for compliance, an attorney, an admin, you need back up and perform audits for the NFA/CFTC. If they have a material AUM, it not a bad deal.

 

Buddy get your foot in the door, 15% sounds good but good only for an year plus as mentioned above you have the discretion to run strategy to outsiders with 100% ownership of those revenues.

After one year 15% can be renegotiated to 20% or so. Do not get tied up in the long term contract. Market loves performance so once numbers are backing you then you will put your own price.

 

I double checked, it's 10% of fund-level returns, so with 20% carry this means half of the carry. The fund has about 50M USD AUM spread across 10-15 strategies. This sounds pretty ok to me, or?

 

If You are getting 10% before their fees with a material amount of AUM vs 10% of their fee?Just read you contract. It does sound fair to me now.