Would you manage OPM without an asset management fee?

To attract customers you have to offer something the big hedge funds, don't.

Of course you can expect to charge less, you aren't famous -yet-.

 

That structure is not a bad one, just your numbers are a little off. I did a -12% and 95%, principal guaranteed deal a few years ago that worked out pretty well.

 

Isn't that like a loan?

 

What is defined by New Trading Profit?
Take the following as an eg.

Month 1: Current Return = 10%
Month 2: Current Return = 5%
Month 3: Current Return = 15%

In the above scenario, what is the new trading profit in each case? Am i right to assume the following:

Month 1: New Trading Profit = 10%
Month 2: New Trading Profit = 0%
Month 3: New Trading Profit = 5%


If that is the case, isn't it very unfair for the investors but advantageous for the manager? See below

Month 1: Current Return = 50%
Month 2: Current Return = 500%
Month 3: Current Return = 1%

The investors have to compensate the manager for the massive profit in month 2 but the manage lost most of the profits in month 3. So the 2nd month compensation is for nothing.

I've always thought compensation is charged on an annual basis, instead of monthly

 

From my personal experience, investors aren't that stingy about the management / performance fee, if it's within the industry standard. Like in a 4 hour meeting:

"What do you charge?"

"2-20"

"Oh. OK"

That's like 6-7 seconds. The rest of the 4 hours is about the other stuff.

 

Yes, with a small share of the profits thrown in
as a kicker. A fairly common arrangement.

 

I would set the % at least at 30%. The higher you go, the more motivated you will be and you need to explain that to the potential client(s). I would actually prefer this over a small yearly mgmt fee and a smaller % of profits.

Why you feel that way? Why 30% is better?

 

How do you ensure the principal guaranteed thing?

 

Anyone knows this?

 

What is defined by New Trading Profit? --- Positive P/L in the month in question.


Take the following as an eg.

Month 1: Current Return = 10% <--------- NTP = 10%
Month 2: Current Return = 5% <----------- NTP = 0%
Month 3: Current Return = 15% <----------- N TP = ((115/110) – 1) * 100%

In the above scenario, what is the new trading profit in each case? Am i right to assume the following:

Month 1: New Trading Profit = 10%
Month 2: New Trading Profit = 0%
Month 3: New Trading Profit = 5% <---------- No not 5%, see above.


If that is the case, isn't it very unfair for the investors but advantageous for the manager? See below

Month 1: Current Return = 50%
Month 2: Current Return = 500%
Month 3: Current Return = 1%

The investors have to compensate the manager for the massive profit in month 2 but the manage lost most of the profits in month 3. So the 2nd month compensation is for nothing. <----------- Well the issue remains even base on 2/20 (vs. 0/30). You can argue that for 2/20, even investor loses, he still pays 2%. In you case, since the carry forward loss is a big negative, so the advisor needs to make it up before he can earn any incentive fee. So the 2nd month compensation is not necessary for nothing. 0/30 option is intended to solve the case even investor lose but still have to pay 2% management fees. 0/30 can not solve the case you cited. But the number (500%; 1%) is too extreme.

I've always thought compensation is charged on an annual basis, instead of monthly <----------- Since NFA/CFTC regulations, performance must be base on monthly. So most if not all, incentive fees are based on monthly not year (or quarter) for CTA/CPO.

If 2/20 or 0/30 is not that good, any suggestions you may have?