I did this a few years ago. I opened an LP, and everyone who invested got a percentage in the LP. I only allowed contributions/withdrawals monthly, so if someone wanted in or out, it's easier to adjust everyone's % monthly, rather then in different time periods. I had a 1% mgmt fee, and 20% of profits. This is a basic Hedge fund profit sharing arrangement. At the end of the year I had a tax accountant issue K-1's to each of the partners.
Questions: managing other people's money?
- Thread starter Bhodie
- Start date
2% management fee, 20% incentive fee is the standard. In Buffett's first hedge fund, started in the 50s, he charged 25% incentive fee, no managaement fee.
if you go to http://iasg.pertrac2000.com/mainframe.asp you can see what about a hundred different funds charge. It varies a lot. The most I've heard about is SAC Capital, run by Steve Cohen. They manage $5B, about $1B of which is Cohen's. He charges a 50% incentive fee. He's having his worst year ever this year: only up about 30%.
if you go to http://iasg.pertrac2000.com/mainframe.asp you can see what about a hundred different funds charge. It varies a lot. The most I've heard about is SAC Capital, run by Steve Cohen. They manage $5B, about $1B of which is Cohen's. He charges a 50% incentive fee. He's having his worst year ever this year: only up about 30%.
I think these are fair rates, provided that the incentive fee is applicable only to net new profits, i.e., losses are taken into account during the fiscal period to assess the net result. If the net result is negative then it's carried forward to the next fiscal period.
In the end, it will be all about positive results, or nothing else to both partners.
cpo
Who cares, how much he charges, if you deduct all fees, he's in the top 5% of performance in the world, and that's after a 50% haircut. I wouldn't complain if I were in his fund. Would you? As per Buffett, while he did charge 25%, he didn't charge anything for the first 6%. So you were guaranteed the risk free rate of return (10 yr treasury-inflation) for free. If you then calculate it out, since the first bit is free, it isn't until you get up around 50% return that he even makes 20%.