Incentive/Profit Fees Crystallization Frequency

[TSWP]

Patrik, I certainly agree with you that a fee structure must be easy to understand and that being a large fund makes it easier to cut fixed fees.



Still the fixed fee has been a pillar of the industry and consequently asset hoarding the preferred direction to reap safe gains for managers, taking less risk in the alpha/outperformance section of the business.



The fact that a giant like BH accepts to change the status quo, to me is a big slap in the face to those that were thinking this is not going to change, while my point was that this HAS TO CHANGE, because it's unfair and inefficient, regardless a fund size.

[goldorak]

> I was quite right in pointing out that the current fee structure makes no sense and has to be changed, but some people are probably not very up to date with the latest developments in the industry...



Could you elaborate the logical link between an old glory, piling up on fees based on reputation and champion marketing, waiving its management fee and you being right?

[TSWP]

Sure, I will write a paper about it and send it to you for peer review.

[HitmanH]

I love the press BH have here. They've spun it so well.



Management fees have only been removed if you'v been invested over a certain period of time (5 years?) - so by no means all, or even the majority of their investors. And on 2 of the approx 6 products they run.



However - this isn't to meant that there isn't news in different fee structures. I've heard a rumor that in London, a new fund (quant, infra & data heavy) is going with no management fees - but a pass through of costs (not sure how that will go with investors - I know some will have problems) - so very transparent not to make money on management (and arguably no incentive to be efficient...) - and just make money on perf...



There's legs in this - and if you've a cornerstone investor who shares your way of thinking - cool - else the 'safer' (not correct) option is a more standard (but add a hurdle!)

[TSWP]

>a pass through of costs



That is a very interesting approach, thanks for sharing the info.



It's worth studying what costs could be transparently shared with the investors, rather than a generic 2% annual management fee with no explanations.

[goldorak]

> Sure, I will write a paper about it and send it to you for peer review.



Plenty of academics specialized in logic would love this new methodology. I never do peer review. I do not work for free.

[Patrik]

Millennium has pretty much always (what I know) been running a similar fee model - pay fixed costs and pay the PMs as cost to investor, no fixed fee, take a cut of what's left after that.

[Martinghoul]

There are also others, apart from Millennium, actually...

[HitmanH]

Citadel (some funds), QSAM

[mental]

I wouldn't call M and C's fee structure transparent by any means. It's rather convoluted, and any amount of digging shows that they'd be much cheaper at 2/20. But the market will bear what the market will bear and they know it.