Reasonable rate for friend managing my money?
I'm letting a friend invest a small amount of my money for me alongside some of his own - he has a fairly risky long/short equity investing strategy. While he'll probably work in investments or at a HF one day, we're both students for now.
What do you think is a reasonable rate or fee for him to charge me? He suggested 20% of profits, but I wonder whether that is too high or whether I should propose a different structure (hurdle rates, fees instead, etc.).
The amount of money is only a couple k, which is small enough that I would be fine losing in the worst-case scenario - otherwise I would obviously never do something like this - so I'm not taking this too seriously. I'm actually more interested in what you all would do (or charge) in this sort of situation, i.e. what you think the market rate for this kind of service should be.
20% of profits is standard, although with such a small amount I would be inclined to want to charge more.
lol at your friend charging you. what a douchebag. you're doing him a favor by giving him some play money to get his feet wet investing; if he earns you a quick buck, keep that shit.
Yeah agreed... there's no way this guy should be charging you a typical 20% performance fee. If you want to incentivize him to spend some time on your portfolio, fine, give him 1% of assets. I would not let him take a share of the upside without an established track record.
With an amount of money that small, the commission fees on trading will eat away at returns pretty hard. You would either need to make a killer return (which is unlikely for an inexperienced college kid), or only make a couple trades a year to avoid this. Given the fact that he has a "risky long/short" strategy, I think he'll be making more than just a couple trades a year. Most discount brokerages charge something like $7-$10 a trade. The only exception would be maybe commission free ETFs, which are usually only commission free if you are long.
If anything, he should be paying for commission fees out of his own pocket while the size of your portfolio is that small. You are actually doing him a favor by letting him manage your investments. If you must pay him, I'd make it no more than 1% of assets annually (a high rate for this situation, IMO).
Just something worth considering.
Great friend. My response would be - sure, 20% it is, but if you lose money I get a 100% of the lost money back.
Let me get this straight, you are a college student and a buddy wants to invest a couple k for you and he's suggesting you give him 20% of profits? Try 2 beer and a high five?
20% is extreme. Even the best hedge funds in the world charge that. The benefit he gets in managing "external" money is much greater than the benefit you'll likely be getting.
If you think he's good, I wouldn't mind giving him 20% over a 15% annual return. Also, I would have an exit set up before hand. For example, if he loses 10% of your capital, you should have the option to pull your money, no questions. Having an agreed-upon exit will be important especially if this is your friend.
Unfortunately the only thing I have to add to this post is: absurd.
Ipsam qui nostrum veritatis molestiae qui. Nulla eum tenetur laborum et. Molestiae dolorem ut rerum dolor ut.
Et ea rerum magnam. Pariatur nulla ratione ducimus aliquam. Distinctio neque deleniti sed. Dolore molestias sed facilis dicta id et. Iusto aut dolor exercitationem quia sit blanditiis.
Recusandae nesciunt inventore nemo. Vero dolores ipsa qui aut tempora quo. Ipsa ea exercitationem impedit earum nemo. Doloremque accusamus eos quis soluta velit atque ab.
Pariatur sed non aut laudantium. Voluptatem est doloremque nobis tempora. In sint neque amet iste non eum. Autem alias omnis non at animi illo. Labore quia qui sed sint deserunt distinctio dolor.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...