Fact or fiction: Asset management compensation
I have been on this forum for a few months now, and I have read a lot on the compensation that portfolio managers get at traditional AM firms. There are several posts on this forum discussing this topic and the general conception seems to be that PM's get paid similarly to IB MD's. However, I have read elsewhere that the traditional compensation structure is that the PM gets to keep between 30-50% of what they make the firm.
I struggle to understand how a PM managing a $800m with a return of 10% - so making his firm $16million a year in performance fees - doesn't take home more than $1-2million. Do the PM's at these firms get a percentage of what they make the firm, or do they get a percentage of what they make above their benchmark?
Just a curious little monkey looking for some information from some bigger monkeys!
A fund is not taking in 16 mm on 800, fees on a mutual fund are 100 bp, figure in trading costs, salaries and other expenses, it's not that much left over for the pm.
you're overstating fees, and traditional AM rarely has a performance fee.
Let's do some really simplified math: Realistically, the fund will probably net 70bps after marketing costs, etc., though this depends on strategy and where the money comes from. So let's say you manage $800mm, that's $5.6mm in revenue. At a 60% payout ratio (gotta cover fund expenses), that's $3.4mm in comp. Of course, you have a team working for you, too, and they need to get paid too. Say 40% of that comp money goes to the head PM, there's $1.4mm/yr in comp, in line with the range you laid out.
Of course, you could double (or triple) assets without really increasing headcount or fixed fund expenses, thus leading to huge increases in PM comp. AM is very much a scale game, and $800mm isn't really a lot of scale.
On that note, do you have an idea what the comp structure at a mutual fund with say $2-4b in assets would be?
Oh okay, I presumed that asset management firms followed the same 1-2% management fee and 15-20% performance fee. Thanks for cleaning that up. So why would anyone invest in a hedge fund when there are AM's making the same return but not charging the same fees?
http://www.magnum.com/hedgefunds/advantages.asp
also, mutual funds never have a grand slam, blow off the doors year like Centaurus' 2006 or BlueGold's 2008
They're seeking diversification, non-correlation and alpha. Whether in aggregate those things exist, well, that's a different story.
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