Is $60K Base + 25% Sales Commission + 5% Equity a good compensation package for a Hedge Fund Sales Director?

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Dear WSO community,

I have been offered a job as a Sales Director at a small ($5 million AUM) hedge fund in Chicago. The hedge fund has only 3 employees but has an excellent 5-year track record with an average return of 15% p.a. (after fees) and a maximum drawdown of 15%. The financial package I have been offered is $60K base + 25% Sales Commission + 5% Equity Stake in the Company. The 25% sales commission means I get paid "25% of the management fees plus 25% of the performance fees" based on the assets raised by myself. The firms fee structure is a 2% management fee plus a 20% performance fee. The 5% Equity Stake means I get 1.25% Equity each year over 4 years (i.e. vesting of 4 years), so at the end of 4 years, if I remain at the firm, I would own 5% of the hedge fund company. Just wanted to reach out and see if I have been offered a good deal? Thanks in advance.

Comments (4)

 
Most Helpful
Mar 17, 2020 - 7:33pm

Just my thoughts/some questions to consider:

  1. Is travel covered/reimbursed by the fund? If you're raising capital and you need to fly to NY, California, or even overseas, will you pay out of pocket for all expenses, or does the fund comp this (hotel/flight/food/car rental, etc.?)

  2. What does 5% equity stake entail from a compensation standpoint? How can you quantify it? Ask for an example if you don't already have one.

  3. Piggybacking off of the prior question, does the 5% equity number link to all assets under management in any case? Do you think it's fair that if the fund has a blowout year - but you don't raise any money - that you won't receive any upside? If you're unable to raise money (which seems like a likely outcome in the current market climate), how will you stay motivated?

  4. Using base case assumptions that market volatility continues and you don't raise capital, can you live off of $60k in Chicago after taxes with no upside? I'd highly recommend pushing up to $100k+ if feasible. Also, what's your definition of a "small" fund? $100M AUM translates to $2M in management fees which should help you gain perspective regarding your ask.

  5. Does the fund have a high watermark/hurdle rate? This is important given that you're paid off of the assets that you bring in (and since you receive 25% of the performance fees for your assets, you could be in trouble in the event that the fund has a down year).

Array
 
Mar 17, 2020 - 10:09pm

the 25% share of fees generated off capital you bring in is typical capital introduction fee structure....imagine you bring in 100mm and the fund makes 15%...generates 2mm + 20% of 15mm = 3mm...so you get 25% of 5mm = 1.25mm

so, you are gambling on whether you'll be able to bring in 100m....which could happen with a single HNW family office investing 100mm...or 5 HNW family offices each putting in 20mm.

This is where you will have the most success.

 
Apr 11, 2020 - 7:56pm
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