Would you manage OPM without an asset management fee?

[ginux]

Quote from dabao91:

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?

My issue is not with the 2/20 or 0/30 structure. My issue is with the way they calculate the profit.

Hedge fund investors can't liquidate at anytime they wish right?

So if they can only liquidate only once a year, wouldn't it be fairer if the profit be based on the profit at the liquidation period?

 

[dabao91]

My issue is not with the 2/20 or 0/30 structure. My issue is with the way they calculate the profit.

Hedge fund investors can't liquidate at anytime they wish right?

So if they can only liquidate only once a year, wouldn't it be fairer if the profit be based on the profit at the liquidation period?


So what are the issues regarding their profit calculation?

Most of times. it is calculated based on per quarter or month.

The fee structure (0/30) is based on monthly liquidation and monthly fee calculation.

If yearly liquidation, fee calculation based on year end performance may be good idea.

Any suggestion in fee calculation?

 

[ginux]

Quote from dabao91:


My issue is not with the 2/20 or 0/30 structure. My issue is with the way they calculate the profit.

Hedge fund investors can't liquidate at anytime they wish right?

So if they can only liquidate only once a year, wouldn't it be fairer if the profit be based on the profit at the liquidation period?


So what are the issues regarding their profit calculation?

Most of times. it is calculated based on per quarter or month.

The fee structure (0/30) is based on monthly liquidation and monthly fee calculation.

If yearly liquidation, fee calculation based on year end performance may be good idea.

Any suggestion in fee calculation?

Profit calculation should be based on the profit during the liquidation period.

If a hedge fund allows liquidation every quarter, profit calculation should be done quarterly.

If they wish to use monthly profit calculation, they should allow monthly liquidation.

That, I believe, would be fairer to investors

 

[BJL]

Quote from ginux:

My issue is not with the 2/20 or 0/30 structure. My issue is with the way they calculate the profit.

Hedge fund investors can't liquidate at anytime they wish right?

So if they can only liquidate only once a year, wouldn't it be fairer if the profit be based on the profit at the liquidation period?

Quite frankly, who cares what you think?

 

[Lights]

mgmt fees are usually paid out quarterly as well unless investor does a redemption which most funds allow every month. if investor does a redemption of his funds midquarter, he pays mgmt fee pro rata for that quarter period.

Quote from ginux:

Profit calculation should be based on the profit during the liquidation period.

If a hedge fund allows liquidation every quarter, profit calculation should be done quarterly.

If they wish to use monthly profit calculation, they should allow monthly liquidation.

That, I believe, would be fairer to investors

 

[dabao91]

Profit calculation should be based on the profit during the liquidation period.

If a hedge fund allows liquidation every quarter, profit calculation should be done quarterly.

If they wish to use monthly profit calculation, they should allow monthly liquidation.

That, I believe, would be fairer to investors


Completely agree with you!

 

[ginux]

Quote from Lights:

mgmt fees are usually paid out quarterly as well unless investor does a redemption which most funds allow every month. if investor does a redemption of his funds midquarter, he pays mgmt fee pro rata for that quarter period.

if most funds allow monthly redemption, then the monthly profit calculation method makes sense. Thanks for the info.