2/20 and compensation for "salespeople"(?) in your Hedge Fund?

bankroll

bankroll

I understand the 2/20 compensation ( http://www.investopedia.com/terms/t/two_and_twenty.asp ), this is how some or many hedge funds get compensated, industry best practice.

Let's say you have a track record, want to set up a completely legit hedge fund with a low barrier of entry (smaller minimums, maybe 10k just to have a psychological barrier; you know, for the little guy to do some justice :cool:) in a friendly but sound jurisdiction (I don't know if Malta would allow this but it's the obvious place comes to my mind; though this is not the main question here) and you even have some salespeople/smart marketers promoting the product.

Question: If it is the situation, if you do not only have to share the 2/20 revenue with your secretary and your accountant but with sales team as well what are also best practices for compensation sharing inside the organization?

***

Side question: the 2/20 industry best practice fee standard does not include any front fee? Yeah, maybe it was not designed for 10k minimum accounts. But there is no incentive for the client against withdrawing her funds in the first few years by a front fee? The presence or absence of the front fee would also be a very interesting factor for the compensation of your sales force or marketers.
 
OK. Maybe I did not ask the question in the absolute correct terms.

But can you help me thinking along these lines?
 
bankroll said:
Question: If it is the situation, if you do not only have to share the 2/20 revenue with your secretary and your accountant but with sales team as well what are also best practices for compensation sharing inside the organization?

***

Side question: the 2/20 industry best practice fee standard does not include any front fee? Yeah, maybe it was not designed for 10k minimum accounts. But there is no incentive for the client against withdrawing her funds in the first few years by a front fee? The presence or absence of the front fee would also be a very interesting factor for the compensation of your sales force or marketers.
More...

No single answer exists. This is a can of worms with lots of issues and will depend a lot on your end goal, type of fund (most 10k accounts will not invest in many fund types as they dont understand them - plus are they allowed?) Point being this is an issue that ties in with an overall business plan - its not stand alone.

You might have a dedicated sales person internally who has equity.
They might have a small salary, big bonus for flows (then you have issues of measuring retention and accountability). If targeting small retail you will be pushing s... up hill. who are they targeting, how do you account for which salesman brings in the money or introduces the client and hand holds them afterwards?
What about their geographical remit, do you divide it up by areas, or platforms, or relationships or arbitrarily - is it one large pot, or do you have a formula? what do you do with non performing sales folks, how long do you carry them for? Are you willing to have loss leaders? How do you attribute redemptions - poor performance, poor sales, or poor markets? etc; etc; etc.
Dont forget you also need to take into account platform costs, the fees they might load on top and 3rd party claims.
There is a reason most dont do it for 10k clients, and sales teams will necessary are possibly the largest expense for some of these businesses.

Re the side question....it relates to the first, but if you have no up front load, you might want to have a lock up, or early withdrawal fee (decreasing after 3 years).

why use an internal salesforce - not not use 3rd party marketers - you might have similar issues but without the employment costs.

sorry if not much help ....
 
Thanks.

Yeah, I guess I might want to learn more on what are some investment vehicles as defined legally by law sold in places like the EU as a single market, what's the difference between them, what is considered a hedge fund and what is not.

If you have information on where I can find out more on this, that would be appreciated.

For example in this part of the world (Eastern Europe, EU countries) traditional insurance companies are allowed to sell so called "unit linked insurance" which are insurance by legal definition in theory they are investments (maybe 1% insurance part, 99% investment part; and horrible by their terms & conditions, you always lose on them).

The usual business model for this is you hire non salaried salespeople who call their family and friends and try to sell the stuff.

There must be something better, right? (Not sure if the above is legally allowed in Western Europe as well or it might just got more 'old'?)
 
every country has its issues, and there has been a move for everything toward the UCITS platforms so it can be passported across countries, but this is costly, you need AUM and often is not worth it as there are extra hurdles to jump across in every country.
But fund structure is only part of it and separate as to what your business model and sales distribution model may be.
Simplest and easiest thing is having a track record. :)
Then finding a larger backer (they will find you)
Ultimately then its a numbers and networking game and odds are unless you are offering something special no one is interested. You will be too risky, not risky enough, not enough of a team or infrastructure, not long enough a track record......
Ultimately its best to avoid retail period....but if you are doing it for friends and family then there are usually exemptions avilable for numbers of investors and amts of AUM.
The skeptic in me will also remind you - no one will sell your fund unless there is enough money it for them, they will promise the world and deliver little. Either way - ensure you keep the equity if you are providing the working capital, or be prepared to give away the equity if you are providing the time and sweat.
good luck.

forgo to add - you might be better looking at your local http://www.aima.org/ group, or asking people in your local area as presently its an ever changing environment.
 
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