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2013 Business Expense Benchmark Survey
The Costs of Growing Larger
Choosing which noninvestment functions to invest in to optimally speed their company’s growth is
a key decision that the chief operating officer must guide, and one that shifts as the size of the firm
increases. In this section, we will examine how the amount that hedge funds spend across several
functions changes as AUM grows. To facilitate this analysis, we will be looking at two main areas—
investment support and business management.
As noted back in Chart 1 in the methodology section,
there are several functions grouped within the
investment support category of our functional
architecture. These are marketing, risk, compliance,
operations and technology. Each of these functions is
a major bucket of expense that the COO must cross-
allocate while trying to grow the firm. There is also a
set of business management expenses associated with
the management company that accrue at every stage
of a fund’s development. Collectively, these business
management expenses include human resources/
administration,
real
estate/facilities,
benefits,
insurance, travel and management, company legal,
audit and tax and accounting.
Breaking Even: Moving from $100 Million to
$500 Million AUM
Chart 8 shows the actual dollars spent by category
for hedge funds at both $100 million and $500
million AUM. The chart also shows where spending
increases, and by how much in each of these areas.
On average, our survey population with $500 million
AUM spent $1.45 million more on investment support
and business management when compared to firms
with $100 million AUM—a figure nearly double the
total being spent by the smaller sized firms, which
spend $1.72 million in total on investment support and
business management.
Chart 8: Emerging Firms’ Management Company-Level Expenses
(Investment Support & Business Management)
Source: Citi Prime Finance. Management company expenses exclude expenses charged back at the fund level and excludes compensation
and third party expenses for investment management. Total dataset examined (44 firms, $125 billion AUM)
+ $453,306
+ $261,595
+ $177,790
+ $78,309
+ $313,513
+ $162,751
+$
1.45M
$
$100K
$200K
$300K
$700K
$800K
$900K
Marketing
Operations
Risk
Compliance Business Mgmt Technology
$100M AUM
$500M AUM
$400K
$500K
$600K
EXPENSES