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2013 Business Expense Benchmark Survey
The Importance of the $10 Billion AUM Threshold
Our analysis reveals that there is a distinct change in some key underlying patterns around headcount
and profitability that occur at the $10.0 billion AUM threshold. The coming section explores how
these changes influence a firm’s overall positioning and can help to explain why it is at this point in
their development cycle that managers often shift from being a classic hedge fund to being a more
diversified alternative asset manager or a multi-manager platform.
The Illusion of a Steady Progression
in Firm Growth
One of the patterns we noted in last year’s Business
Expense survey and that the data continued to show
in this year’s analysis is that there is a steady increase
in the size of a hedge fund’s headcount as they grow
to significant AUM milestones. This is illustrated in
Chart 13.
As noted in Chart 6, our model shows that break-even
for hedge funds looking to cover their costs based
solely on their management fee collections is $300
million AUM. Because the margins even above this
AUM band are so tight, there is a general reluctance
to add headcount too aggressively early in a firm’s
development. Headcount only increases by 1.7x from
an average 10 individuals for firms with $100 million
AUM to 17 people at managers with $500 million AUM.
This is despite a 5x increase in assets.
Therefore, it appears that managers will make do
with only limited headcount growth until their assets
reach a sufficient size to begin to qualify them for
institutional tickets. At this point, the need to have a
more professional operations and control environment
encourages an accelerated pace of growth.
Chart 13 goes on to show that as AUM increases from
$500 million to $1.5 billion, headcount increases
by 2.1x, rising from 17 to 36 individuals. This rate of
growth in total headcount continues at each of our
Investment Support
Chart 13: Average Headcount per Firm Size
Source: Citi Prime Finance. Total dataset examined (124 firms, $465 billion AUM)
$100M
$500M
$1.5B
$5B
$10B
>$10B
0
50
100
150
200
250
300
350
NUMBER OF PEOPLE
Business Management
Investment Management
10
36
76
146
311
17
2.1x
1.9x
2.1x
2.1x
1.7x
5x
3x
3.3x
2x
3.6x