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2013 Business Expense Benchmark Survey
of intensive investment back into their business and
that they are well positioned to begin monetizing their
earlier spend, as they are now positioned to become
more franchise-like in their profile.
Crossing the Franchise Threshold: Moving
Above $10.0 Billion AUM
The pace at which investments are being made back
into their business slows after hedge fund firms
surpass the $10.0 billion threshold. The move from
$1.5 billion to $5.0 billion AUM—a 3.3x increase in
assets—was matched by a 3.0x increase in spending.
The move from $5.0 billion to $10.0 billion AUM—a 2.0x
increase in assets—was matched by a 2.5x increase
in spending. This contrasts sharply to what happens
above $10.0 billion. The average AUM of our survey
participants in this category was $36.4 million AUM,
a 3.6x increase in assets from the $10.0 billion AUM
level. Yet, expenditures by these firms with >$10.0
billion AUM rose by only 1.5x, from $55.0 million to
$79.7 million. This is illustrated in Chart 12.
Most of the increased spend registered by firms with
>$10.0 billion AUM can be traced back to operations
and technology. These two categories together
showed a rise of $18.1 million—73%of the total increase
of +$24.7 million. As shown in Chart 4, the product
mix of our survey participant firms with >$10.0 billion
AUM changes dramatically, with long-only, regulated
alternatives and other products accounting for 47%
of these firms’ assets and traditional hedge fund
product representing only 53% of AUM.
Processing and oversight demands are significantly
different for these products and to accommodate
the expansion in their product suite, these firms
are forced to support a broader set of functions
and capabilities. There is a sharp expansion in the
number of operational headcount focused on trade
and portfolio operations at firms >$10.0 billion AUM.
Firms with $10.0 billion AUM have an average of 29.5
heads devoted to the overall category of operations,
of which 12.3 heads are assigned to trade and
portfolio operations with the remainder focused on
accounting or finance/treasury support. Our >$10.0
billion AUM firms in the survey had, on average, 60.5
heads assigned to overall operations, with 48.1 heads
focused on trade and portfolio operations.
Although the headcount spikes, there is a decline in
the average per-head cost of operations for firms
with >$10 billion AUM. Per-head compensation
for $10.0 billion AUM operations teams averages
$251,902 according to our model; that figure drops
Chart 12: Crossing the Franchise Threshold: Management Company-Level Expenses
(Investment Support & Business Management)
+$7.93M
+$9.95M
+$499,886
+$727,701
-$2.56M
+$8.17M
+ $24.7M
+ $33.28M
$
$5M
$10M
$15M
$20M
$25M
Marketing
Operations
Risk
Compliance Business Mgmt Technology
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)
$10B FIRM >$10B FIRM (AVERAGE AUM $36.4 BILLION)
EXPENSES