Just a subtle warning for anyone planning on managing others money. It's easy to fall into the Madoff trap.
First of all, make sure the regulatory issues are taken care of. If you're doing this as a CTA/CPO, make sure the firm "marketing" for you is properly registered with the NFA before you pay them a dime. If you're a CPO, then you also need to make sure you're meeting SEC requirements. The firm "marketing" for your fund needs to be a registered broker/dealer before you can pay them any compensation. I've been told 20%-25% of fees are pretty standard numbers, for someone starting out in the business (and therefore raising large amounts of money would be "difficult").
I, uh, personally don't think it's really that easy to "fall into the Madoff trap" of fudging numbers. Is it really not immediately obvious that forging performance numbers for your investors is obviously, incredibly, dangerously, serve time in prison kind of illegal?
Perhaps if you are corrupt to begin with. Regardless.... This is why reputable third party administrators are a must. Anyone who gives money to anyone without this type of proper set up isn't very bright.
20% sounds low, this is 0.4% of assets, but I guess this is more the norm for large pools. In my case I am talking $100-200k per client, I also have a relatively short track record with client money, so I may have to surrender a bit more from the fees.
I don't want to get this thread off topic but as a former RIA I've seen small money managers fall into this trap over and over. Their initial intentions are honerable but when things don't go right and you've put your life into getting a money management business off the ground, it is very easy to start fudging numbers thinking you will be able to make up the difference when things turn around. It happens over and over again. So be very careful both as an investor and as a manager. Enough said. The very best to you, Neutrino. I hope it works out.
I agree it's low but it's the standard in the industry. I remember when I raised my first 500k, I was very upset with the low payout. I was since able to negotiate up to 50% with a few funds but most insist on the 20%. You need to raise a ton to make any money and the funds needs to perform. Otherwise you would be better off doing something else
At the end of the day, it's what you negotiate. In practice... in some industries, it's a one-time payment. From what I've seen in the hedge fund/alternative investment industry, it's usually an on-going percent.
No, it's ongoing as long as the funds are deployed. It can add up to serious coin if the funds are successful. If not, it's just the percentage of mgt fee. Lots of third party marketers got rich in 2008 with the 20% of the 20% incentive fee.