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2013 Business Expense Benchmark Survey
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Emerging hedge fund firms are those that have
not yet accumulated enough AUM to easily absorb
large institutional tickets of $50 to $100 million,
and for the most part have AUM below the
$1.0 billion threshold;
§§
Institutional firms are those that manage anywhere
from just over $1.0 billion to more than $10.0 billion,
and are therefore in various stages of building out
their platform to extend their marketing, enhance
their risk management, improve their reporting and
achieve a level of operational professionalism that
satisfies their demanding investor base;
§§
Franchise-sized firms are those that have achieved
a robust and effective platform and are looking to
leverage their infrastructure to manage a broader
pool of assets, either by adding investment
professionals or by extending their product suite to
include long-only or regulated alternative funds or
pursuing both of these paths.
Expense Figures Confirm Distinct Economics
The depth of this year’s data has allowed us to explore
the actual costs of running a firm at each of these
stages. As noted in the methodology section, our
database now contains information on 124 firms that
collectively represent $465 billion AUM, or 18.5% of
the industry’s total assets based on the Q3 Hedge Fund
Research(HFR) global AUM figure of $2.51 trillion. Our
data analysis confirms that the economics between these
three stages are distinct. This is illustrated in Chart 3.
Management company expenses based on Citi Prime Finance survey including all third party expenses & total compensation
for investment support & business management personnel
Chart 3: Total Management Company Expenses
(Excludes Fund-Level Charges)
SIZE OF ORGANIZATION
SMALL
Source: Citi Prime Finance. *Average AUM for firms with >$10.0 billion AUM equals $36.4 billion. Total dataset examined (124 firms, $465 billion AUM)
Average:
169 bps
0
.5%
1.0%
1.5%
2.0%
2.5%
BASIS POINTS
$100M
$500M
$1.5B
$5B
$10B
>$10B
Estimated salaries (not total compensation) for investment management personnel based on headcount data collected in
Citi Prime Finance survey & industry compensation assessments
EMERGING
INSTITUTIONAL
FRANCHISE
Average:
66 bps
Average:
34 bps
-61%
-49%
A Tale of Three Industries
The economics of running a hedge fund firm change in line with AUM growth. The trajectory of
change is not consistent, however; instead, it can be seen as occurring across three “stages” of
hedge fund development. These stages have distinct profiles and can be broadly broken down
as follows: