First Time PM Profit Sharing - Is a 50/50 Split of Performance Fee Standard?
I’ve been running a systematic macro strat on some SMAs (~20m with recent sharpe 2 ish). A small fund approached and proposed a partnership to launch a sub fund under their main fund, with the terms below:
• Launch <span class='keyword_link'><a href="/resources/skills/trading-investing/assets-under-management-aum">AUM</a></span>: 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.
Is this kind of split typical for a first-time PM with a similar setup? Or am I underselling myself? Any insights or advice would be appreciated!
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 pnl I generated 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 on performance fee is typical. Does this sound standard for a first-time PM? Or am I giving up too much?
Launch AUM: $10M to test and build track
Capital Commitments: They’ll raise 85% of the AUM; I’m required to bring in the remaining 15%
Cost Coverage: No upfront or formation costs for me; they’ll cover all service provider fees
Profit Split: They want 50% of the 20% performance fee and 80% of the 2% management fee from the capital they raise. For capital I raise, they’ll take a small portion of the management fee
Respectfully, this deal sounds really bad. I'm definitely not accusing them of bad faith here since I don't know them, but it does seem you will be getting taken advantage of.
For context: if you put up your own money at a prop firm, you should be getting 70%+ of your PnL with a professional infrastructure as an above the line expense.
I would think hard about taking this deal because it sounds like you would be leaving a lot on the table here. I think you should be able to get better terms elsewhere where you can get an audited track record, and professional infrastructure.
I would also think hard about what kind of infrastructure you really need. Is it easily replicable? Is it something you can re-create yourself with some legwork? You're putting up your money anyways so you should at least think about it. You'd also get to have maximum freedom this way.
Indeed, 10% will be reasonable terms for an anchor, but these still apply to all future LP dollar they source, it seems quite unreasonable for cap intro.
Starting my own structure and finding a better anchor might be more ideal
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