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2013 Business Expense Benchmark Survey
to create their own treasury and financing desks.
Obtaining cross-functional views and normalizing data
across these multiple systems is a major undertaking,
but one that repositions the firm’s capabilities.
Investors, too, begin to demand more customization
from their larger hedge fund managers. In the years
following the 2008 Global Financial Crisis, there
has been a dramatic increase in investor demands
for transparency into portfolio holdings. Many want
the managers to create customized reports for
them that reflect the manner in which the investor
prefers to calculate exposures and risk. Others want
their hedge funds feeding risk data directly into the
investors’ risk system. Achieving this level of flexibility
is also an expensive and difficult process that requires
substantial changes in a hedge fund’s technology.
Based on our data, outlays on technology become
the single largest cost for firms at the $5.0 billion
AUM level, rising from only 18% of the firm’s overall
expenses at the $1.5 billion AUM level to 32% of
expenditures. As the systems change, there is a
corresponding need to enhance the firm’s operations
and spend in this area also rises sharply, by
$2.01 million.
After technology and operations, the next largest
increase in spending occurs in business management,
where there is a $2.96 million jump in investment.
Average headcount at the hedge fund tends to
surpass the 50-person threshold somewhere between
$1.5 billion and $5.0 billion AUM. This is an important
point from a benefits perspective and may result in
firms moving from an outsourced to a self-funded and
self-administered plan. This requires the expansion
of the internal human resources function: Headcount
related to human resources rose from an average of
1 head for firms with $1.5 billion AUM to 2.67 heads
for firms with $5.0 billion AUM. Average third party
spending related to benefits and insurance rose from
$202,891 for firms with $1.5 billion AUM to $886,227
for firms at $5.0 billion AUM.
The final area where spend jumps significantly is
in marketing, with gains of $2.11 million versus the
amount being spent by firms with $1.5 billion AUM.
Firms near the $5.0 billion AUM threshold often
begin to invest more heavily into an investor relations
function. Whereas much of the emphasis to date has
been on capital raising, the need to retain capital
becomes equally important for larger firms. These
professional investor relations individuals and teams
begin to actively engage the clients of the firm, and
become a day-to-day point of contact to ensure
responsible and frequent communications.
Chart 10: Institutional 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)
+$2.11M
+$2.01M
+$1.15M
+$675,613
+$2.96M
+$5.56M
+
$
14.48M
$
$1M
$2M
$3M
$4M
$5M
$6M
$7M
$8M
Marketing
Operations
Risk
Compliance Business Mgmt Technology
$1.5B FIRM $5B FIRM
EXPENSES