Could You Sell This Hedge Fund?
If I had a hedge fund with $1million AUM and a 5 year track record of outperforming the market on average 10% each year, would you be able to sell my fund?
Requirements: - Extensive sales experience and a large network of high net worth individuals. - Self motivating. - Ability to work without an office until the fund expands.
Compensation: $100,000 base salary and a bonus equivalent to 15% of all fees earned off assets you've brought to the fund.
This is all hypothetical right now, I'm just gauging at what type of compensation package would be required to get a top notch salesperson.
Can you even incorporate a hedge fund with 1 mill anymore?
Curious as well though I'd like to end up in a fundraising role later on in my career and I'm always looking to hone my sales skills.
From what I've read it's possible but not the ideal number. Either way it's not the salesperson's concern.
Just how would the 100k base be financed? That would be 10% of present AUM.
Let's say he raises $19mill the first year (20mill total) and you take 2 and 20 percent cut. You outperforme the market with 10% and gets a return of 22%. Total 24.4mill, but with an average of $12.2mill AUM for that year.
2% of 12.2mill is ~244k to cover the fixed expenses of your firm. Which leaves the fund with a total value of $24.156mill. You take 20% in performance fee of the profit of 4.156mill= 0.8312mill.
That leaves you with an income of 1.0752mill to cover all your expenses. Minus 100k for his base= 0.9752 and his 15% cut of all fees (from income)= 0.161. Turns out to be 261k comp for the salesman and an earning of 0.8142mill before all the expenses are paid for (not including his comp.)
These are just numbers I've pulled out of my ass, but do you see it as a good deal to pay him almost 25% of the revenue?
The 100k base would be financed through personal assets from sources outside of my fund. Either straight out of my savings account, or a home equity line if necessary. I'm not positive what exactly the payout to top salespeople should be, but what I do know that it is nearly impossible to raise capital, without a decent amount of capital already under management. Therefore, I'm willing to pay top fundraisers considerably more than the going rate during the early years of my fund.
PS: If anyone raises me $19 million per year, they deserve an office. =]
Just curious, what would be your expectation from a fundraiser starting for you the first year?
Hooked: Ha ha. I guess most of us could afford an office if you outperformed a bull market by 10%. I'm just wondering for how long you could pay him if you hit a losing streak and underperform? 1-2 years? Just remember there are dental plans, health care, 401(k) and a ton of other costs. You don't always have to 'go for broke'.
Start selling off part of my assets in the fund (the original $1 million was mostly my money) or assets outside the fund. I would try to retain top salespeople as long as possible, even if my fund was imploding.
100K is not a lot for a "top" sales person (even after you factor in the 15% of new money they bring in, since it will be VERY difficult to sell this fund).
100K is less than the base salary for most entry level analysts at top funds. And I realize that this isn't a top fund, but if you want top talent that is who you are competing with.
Well the $100,000 and 15% are very negotiable figures. My outlook on this is hedge funds with such a small number of assets under management are very tough to sell, therefore I must do everything within my power to change the fact that I am selling a micro fund, even if that means taking a loss.
Do you guys think $120,000 and 25% of all fees earned from assets they bring in be sufficient to to attain the type of talent I'm looking for? I don't want to give too big of a base salary, because salespeople are a lot more aggressive when the bulk of their income is performance based.
industry standard is about 20-25% on all assets raised. A good fundraiser isnt someone who is going to work solely for you in return for 100k and 15%. You wil have to find this person, who will be working for himself or a large institution, and pitch him on your fund. Then he will introduce you to capital in return for a cut if he likes you (which is highly unlikely given your short description). But why would someone who can raise 8MM bucks out of his roladex give it to you and not a far more qualified fund?
45%?
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