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Digital Subscriptions > The Hedge Fund Journal > Issue 139 – Mar 2019 > Making it Big: Hedge Fund Manager Survey 2018

Making it Big: Hedge Fund Manager Survey 2018

Charting the evolution of the billion-dollar hedge fund

GPP + AIMA + EDGEFOLIO

Part two of a two-part extract. Part one appeared in Issue 138 of The Hedge Fund Journal.

How to make it big - part one

Lessons that the smaller manager can learn from their larger peers

Make every effort to underwrite your business for the immediate future

Breakeven points

As a hedge fund grows, so too does the level of assets under management it needs to breakeven. While a start-up and emerging manager can breakeven with $85m of assets under management, our research shows that firms who manage between $500m and $1bn in assets require nearly double that, with the average breakeven point being an estimated $176m.

Although breakeven appears to be achievable at a relatively modest level of AUM, much of the feedback we received from larger managers was to note the need for enough working capital within the business to subsidise the first few years of growth. Many fund principals are prepared to go for a considerable time without paying themselves a salary, and many have invested their own personal wealth. Successful managers know that they are committed for the business for the longhaul, they must be prepared to endure lean years at the beginning, irrespective of performance as investment might not arrive for a number of years. The managers we spoke to referred to having at least enough working capital to support two, if not three years of sub-scale AUM.

It is worthwhile noting that there were fewer managers in the $500m to $1bn category than there were in any other size category, and this is representative of the industry as a whole. It appears that once a fund has passed the $500m threshold it is more likely to continue growth towards $1bn.

Be flexible to attract investment

Management fees

Reaching a certain level of assets under management is not the only factor a fund manager has to take into consideration when understanding how best to breakeven. Much depends on the revenue that the firm can generate through fund(s) fees and compensation, that it derives from its fund(s) performance.

As discussed earlier, fees and compensation have been under intense scrutiny with many of the largest allocators pushing for new and innovative fee structures − which are often geared to creating alignment with the fund’s performance fee.

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About The Hedge Fund Journal

Informing the Hedge Fund Community. With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.