Quote from Surdo:
Just an FYI, a 2/20 split is 2% of Assets and 20% of new High Water Mark. This is fairly common industry standard.
which brings me to my next point, Gentlemen.
I am not even IN the HF industry yet I already see changes that need to be made.
A couple of them I am keeping under my hat at this point because if I never even am able to get a HF then none of my proposals matter.
I think Rufus indicated to me that my proposal for a money-running set-up would not work because no one would want to invest but... here it is anyway (in bare basic form).
1. do away with the 2/20 structure.
2. base pay/% closer to Alfred Winslow Jones' (the original HF guy) original structure that, in a nutshell, was more performance-based.
so lean the manager's pay more towards performance then reward that performance better.
3. this is pretty simple:
A). The first 25% profit (that is the "conservative target") belongs to the investors.
B). Everything
after that is the manager's pay.
C). Expenses are always taken out of the account money BUT there is no set 2/20
so it is a clean 25% for investors.
That matters more than many may think, because for an investor to get 25% BUT have it chewed to pieces by
expenses, 2% fee, highwater marks of 20%+++, the investors don't ever really know what they're going to make.
D). Two-year
Lock-up period is MANDATORY.
Why? Because there's nothing worse than piquancy investors
redeeming their money at every slight market down turn. THAT is why they are "investors" and not traders because they do NOT have the temperament for it, whether they admit that or not - the market EATS "well-healed" highly educated rich guys.
So when they lock up money for two years they KNOW they are committed for the longer haul. It also gives the money manager more 'breathing room' to target larger time frame trades for profit.
That would net investors 12.5%/yr.
E). If the profit target of 25% is NOT met, then the manager should get 5% management fee (he has to earn something!) plus a hefty split of profits of what IS earned: MORE than 20% of the HWM.
Of course, audit, legal and operating expenses still get paid out of the account in addition to the manager's pay.
That would be the
bare minimum terms upon which I would trade public money in a hedge fund no matter how much money in the account.
Because, after all,
without hard-core, successful traders to trade it for them, all the investors' money in the world is worthless.
Traders can always trade their OWN private money - but investors... if they try to access the markets... will end up giving their money to the real traders.
That's why they need managers to trade it in the first place it.
