I was just curious about the compensation structure at hedge funds.
For example, if I was a PM running one of several funds at a major HF shop, is there sort of an industry standard compensation structure, or is it negotiated on an individual basis? If the HF charges 2 and 20, how are the profits distributed between the overall fund manager and the portfolio manager?
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Whatever you can negotiate; often the PMs will have contracts or comp agreements that reference their performance/incentive fee income. I've also heard of setups at larger management cos. where the PM's agreement is intended to pay the analysts as well so the whole group's comp is tied to gether and the PM has to allocate it and balance keeping people happy with paying themselves.
Top PMs will sometimes get pretty generous contracts to keep a bigger % of their fee income with the rest going to the management company. This is one of the reasons having your own shop is so lucrative even on a small scale, because you don't have the senior partner mouths to feed.
Keep in mind that at a lot of smaller funds the PM is the founder or a partner, so the structure of compensation is less important in that situation.
when you say a generous cut is that 10%, 20%, 50%?
Dunno but I can't imagine it'd be much over 50% unless someone really wanted to lure you in-remember the management co/founder has to do the marketing, IR, back office, etc and has its reputation on the hook if you bomb.
50%?...haha no I wish. PM's are paid based on performance and that number is usually about 15% at a normal 2 and 20 firm. At some small prop trading firms like first new york securitites the payout can be way higher but those places are to small for you to get alot of money.
Thanks for the detail-I imagine that 15% is in a large, multi-PM firm; can you give us a ballpark for how many PMs work for your fund and how many non-PM senior partners there are?
We have one PM and the founder who basically co-manage our funds so I expect that net of expenses and comp for the junior people it goes mostly to the two of them (still waiting for my first comp season).
Partner and PM are very different at the fund I work for. Many PMs are not partners and many partners are not PMs. A PM generally has a deal on his own performance and no partnership in the rest of the firm.
Interesting-what do the non-PM partners do, mostly LP relations, COO roles or general CIO-style stuff?
Various technology, operations, and research people who have been there "since the beginning" or at least close to the beginning.
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