First time launching a fund
I’ve been running a systematic macro strat on some SMAs (~20m with recent sharpe 2 ish). A small fund approached and wanting to partner on launching a sub fund under their main fund, with the terms below:
Launch AUM: 10m to test and build track
Capital Commitments: They’ll raise 85% of the AUM, while I’m required to bring in the remaining 15%
Cost Coverage: No upfront or fund formation costs for me; they’ll cover all service provider costs
Profit Split: They want 50% of the 20% performance fee and 80% of the 2% management fee from the capital they raise. For the capital I raise, they’ll just take small part from the management fee.
This structure would let me build a much-needed commingled, audited track record (most of my SMA clients won’t invest in a fund structure). However, I’d only keep 10% of the performance fee on their capital.
Given my background (non-target, no experience in real shop, bootstrap my process by learning directly from industry connections and refining as I go), this could be an opportunity, but I’m not sure if the 50/50 split is typical. Does this sound standard for a first-time PM? Or am I giving up too much?
I just have questions.
The $20Mm is just separately managed accounts, but is it under a company? Or are you managing capital for friends and family? Something else? What do you mean no experience at a real shop?
Sounds like the only limitation you have is due to your mandate at the moment so you're looking at this instead. Someone with the 15% of capital could easily afford an incubated fund under different circumstances provided we are only discussing the incubated fund itself and not converting to a hedge fund. Can you afford that on your own? You could incubate, market your strategy, and then raise the 15% you need for this other opportunity without touching your own capital beyond the initial incubated fund.
SMAs are not under a company, just friends and some small family offices I know. $20m is spread across many accounts which isn't ideal.
No experience at a real shop = never worked at any buy/sell side
The reason I'm considering is because there's no exclusivity clause. I can still manage my current SMAs and run the sub-fund simultaneously. Also no fund formation cost = 0 up front cost other than the 15% aum has to be raised by me.
I can afford an incubator fund, and ideally is to do all three, continue running the SMAs, start an incubator fund , and agree to the partnership of the sub fund launch if the fee sharing(10% of the pnl you generated) is not so..in my opinion, absurd.
Is 10% of pnl generated a common setup for PMs?
How long is the track record in years and how scalable is it?
Track since 2018, latest process since sep 2023 with ~300m capacity
Essentially they’re offering you 0 and 10 on LP dollars they source, right? That’s not bad to get you off the ground with the commingled product. If they have no profit share on the next 100 million or whatever, I think it’s a great deal. You’re essentially getting reduced fees from an anchor without future participation (no rev share).
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