Incentive fee OTHER than high-water mark?

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Peblo

Consider a fund that says they charge 20% incentive fee every month there is a profit and they do not use high-water mark provision. For instance, in the following scenario:

Month 1: 10k profit
Month 2: 10k loss
Month 3: 10k profit

the manager takes 2k in month 1 and 2k in month 3, meaning that they take 4k out of 10k made in the market.

In my understanding, by doing that they are effectively, over long run, charging close to 100% of the profits made in the market (if you repeat the above scenario enough times).

My question is:
Are there any funds/CTAs that use something like above or any method other than high-water mark for incentive fee? What could be these alternatives?​
 
I would never invest in a manager that does not use a high watermark. Without it, the manager shares in the good months but never has to make up the bad ones. It is typical to charge a management fee and an incentive fee. The higher the fixed costs of the manager, the more important the management fee is. If you are a CTA or an RIA, and your fixed costs are very low, charging a lower one makes sense. I have seen these offered. 2/20, 1/25, 0/30, and 0/50. Some hedge funds also have a hurdle that they must meet before they can share in the incentive. 1 year T-bills would be common so the manager is not being paid on unused cash.
 
I have invested for myself and for my family in both CTAs and Hedge Funds. When it comes to fees, I care the most about my net expected returns vs the risk I'm taking. Just looking at the fee schedule does not tell the story for me. E.G. A long-short manager that averages 5%-6% a year, alters the portfolio quarterly and has minimal support staff is not getting 2/20 from me. (I'm ignoring typical drawdowns for this example, but I do care). But for an HF manager with a hosted solution, a team of programmers and support staff that can earn me 30%/year net, I'm happy to pay 2/30. This focus on just the fee is not what I do. I can't speak for others.
 
Robert Morse said:
for an HF manager with a hosted solution, a team of programmers and support staff that can earn me 30%/year net, I'm happy to pay 2/30. This focus on just the fee is not what I do. I can't speak for others.
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30%/y, really, that's amazing [fantastic in fact] is that yoy?

how is that possible, how much invested capital across 'the family & friends' are you investing - some specifics if you wont mind sharing?
 
Peblo said:
Consider a fund that says they charge 20% incentive fee every month there is a profit and they do not use high-water mark provision. For instance, in the following scenario:

Month 1: 10k profit
Month 2: 10k loss
Month 3: 10k profit

the manager takes 2k in month 1 and 2k in month 3, meaning that they take 4k out of 10k made in the market.

In my understanding, by doing that they are effectively, over long run, charging close to 100% of the profits made in the market (if you repeat the above scenario enough times).

My question is:
Are there any funds/CTAs that use something like above or any method other than high-water mark for incentive fee? What could be these alternatives?​
More...


Nobody would entertain this arrangement because it's moronic and offers zero accountability.
 
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