% PnL at Single Manager
Any thoughts on the below payout structure for a sector head at a single manager fund?
Context: $5B fund ~5-10 years experience 5% of profits (aka 25% of 20% incentive fee) on solely generated ideas
Pretty fair. I get the same with 6yoe at a bit smaller SM. Average %P&L take in our fund is 2%, highest is 10% (>10yoe).
Pretty fair, interesting so many shops pay on pnl and not alpha, no wonder everyone longed beta
Don't get me started again about the whole MM vs SM shit that seems to be a recurring theme here. Intellectual bragging rights are great, but I'd rather have dollars on my pay stubs. And if you really feel this way, then there's a whole industry of LO/AM where it's about as beta as you could possibly be, and those guys can make decent money. I don't hate them for it...good for them getting paid.
Think about it though: if an LP wanted beta exposure, they could get it practically for free. Even LO shops survive by generating alpha, otherwise no management fee is justified
Most reputable SM's and LO's have some sort of alpha compensation built in. Compensating only as % of absolute returns incentivizes vol maximizing (which is bad)
Geez this got some hate - to clarify I’m at an SM that calculates comp with a bias toward shorts and considers alpha, and know others that do the same - which was my point. Not SM vs MM. just seems like a flat % pnl incentivizes analysts to get high beta large longs on all else equal.
That makes a lot of sense in terms of incentives driving outcomes. Are you at low-moderate net firm or there is a lot if flexibility in exposure? What is your %PNL based off alpha generation and shorts? And how does that compare to your total comp?
I ran out of SB so want to reply in support of ur point. It’s a typical setup in SM. Paying straight on % returns incentivize people to become beta timers and fight for BS
Idk where the hate is coming from. This is how you make sure a fund lasts through multiple cycles
Depends on your $ sleeve as well and how the deferral looks like. Sounds about right at first sight.
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