When someone says they generated $Xm of PNL, is that profit / loss for their portfolio - or the total fees they generated for their fund?
E.g., with a 100m portfolio at HF, 20% performance fee
Is a 10% ($10m gross) return a $10m PNL, or a $2m PNL?
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Based on the most helpful WSO content, when someone refers to generating $Xm of PnL, they are typically talking about the profit or loss generated from their portfolio before fees are taken into account. So, in your example with a $100m portfolio at a hedge fund and a 20% performance fee, a 10% return would mean a $10m gross PnL. The $2m would be the performance fee earned by the fund from the $10m PnL, assuming the entire performance fee is taken from the PnL generated.
To elaborate on point 1: - Gross PnL refers to the total profits or losses generated from trading activities before any fees, commissions, or other costs are subtracted. - Net PnL would take into account these fees and other costs, providing a figure that represents the actual profit or loss after all expenses. - In the context of hedge funds, the performance fee is typically a percentage of the profits (PnL) generated by the fund and is paid to the fund managers. This fee is separate from the PnL figure itself.
So, if a portfolio manager says they generated a $10m PnL, they are referring to the gross profit from their trading activities, not the net amount after fees.
Sources: Highest earning portfolio managers, What Happens when a PE Fund Closes?, https://www.wallstreetoasis.com/forum/hedge-fund/the-hedge-fund-experience-good-bad-ugly?customgpt=1, How PWM really works (part 1): past, present, future, and $$$, Would you make this move?
Returns % (to the LP) are often stated on net basis, but when discussing the breakdown of PnL at the portfolio level it is gross. So in your example I would assume the person did $10m PnL on their $100m. Their fund may have a hurdle, or higher/lower fees etc - basic PnL stats are more comparable. So if it’s 20% fees on PNL the fund, that would be $2m of fee revenue generated. Expenses such as data and trading costs can be charged many different ways - if one fund has a passthru expense arrangement actual net income can look a lot different
Also, long-biased funds tend to mean NAV when they say AUM, and usually talk about returns as % of NAV. Pods will speak in GMV (gross market value) which makes the books sound larger and return % sound smaller.
To answer your question literally - when people say P&L they are talking about the total $10M generated, not the $2M incentive fee.
You don't know how much fees u have generated. And in many cases it can't be known.
You can have a rough idea but depending on your fund structure it is very different.
For exemple a SM classic 2/20:
You do 50M$ pnl, but the fund overall is flat so the fund has taken only the 2% flat fee,.no perf fées.
How much fees ur 50M$ pnl have generated ? Can't say.
Moreover each client has a deal for fees, founders pay 0 fees in general, employees have a discount, big clients too. Clients that agree to lock ups can have discounts, seeders too etc... So even if ur fund says they are charging 2/20, the average fees is probably much lower.
In a MM/pass through: if u do 10M$ pnl and have a 15% formula, u will take 1.5M$ from the client that is for sure. How much the fund will take on top of that, good question haha
To be honest even your pnl can be an estimation if u don't trade directly (which is the case in most places) as funds do netting across PMs trades. If u are long Apple for exemple but 9 other PMs are short, the fund will be short. If Apple rises, the fund will "show" you a positive pnl for your strategy, but in reality the fund and the clients have lost money. So true they would have lost more without you but still ur pnl is a bit "fictive" and how much fees this trade has generated ? Impossible to say
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