SM AUM vs MM GMV - comparison

Based on the most helpful WSO content, your comparison between SM AUM and MM GMV is on the right track, but there are nuances to consider:

1. Leverage Differences:

   • MM GMV (Gross Market Value) is typically 7-10x levered on the underlying capital, which means the actual capital at risk (or AUM equivalent) is much smaller than the GMV figure. This leverage amplifies returns but also increases risk.
   • SM AUM, on the other hand, is generally not levered to the same extent, making each dollar of AUM more "valuable" in terms of risk-adjusted returns.

2. Fee Structures:

   • Your assumption of SM targeting 15% returns with 15% incentive fees and 1.5% management fees aligns with traditional SM economics. This results in $4 million on $100mm AUM.
   • For MM, targeting 3% returns with 15% incentive fees (and no management fee in this case) results in $500k on $100mm GMV. This highlights the disparity in fee generation between the two models.

3. Performance Expectations:

   • SMs often aim for higher absolute returns (e.g., 15%), while MMs focus on lower but consistent returns (e.g., 3%) due to their market-neutral strategies and risk constraints.
   • Exceptional MM pods can achieve high single-digit returns (HSD), but this is rare and often dependent on specific strategies or market conditions.

4. Cost Structures:

   • MMs typically have higher data, vendor, and research costs due to their reliance on extensive infrastructure and systematic processes. These costs can significantly impact net payouts.
   • SMs may have lower overhead costs, but their scalability is limited compared to MMs, which can deploy capital across multiple strategies and geographies.

5. Translation Factor:

   • Your estimate of SM AUM being worth 5-6x MM GMV dollars seems reasonable, given the differences in leverage, fee structures, and performance targets. However, this ratio can vary depending on the specific SM or MM fund, their strategies, and market conditions.

In summary, while SM AUM dollars are generally more "valuable" than MM GMV dollars due to higher return targets and lower leverage, the exact multiple depends on various factors, including fees, costs, and performance assumptions. Your 5-6x estimate is a solid baseline, but it’s important to adjust for specific fund dynamics.

Sources: Performance of the best PM’s at MM’s?, AM vs HF: The Business of Our Business, , How Does Citadel HF Make $28bn Revenue with $55bn AUM? Multi Manager Economics, LO to MM HF?