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2013 Business Expense Benchmark Survey
highlighted AUM bands, maintaining a 1.9x to 2.1x rate
of growth. This seems to show a steady progression,
but when viewed against the underlying level of AUM,
this growth is not as even as it appears.
There is headcount growth of ~2.0x after a firm
reaches $500 million AUM compared to about a ~3x
increase in assets for most of our key AUMmilestones.
Headcount increases by 2.1x as AUM grows from $500
million to $1.5 billion. Headcount again increases by
2.1x as AUM rises from $1.5 billion to $5.0 billion AUM.
This same pattern is true as a firm’s assets rise from
$10.0 billion to $36.4 billion AUM.
A very different pattern is noted between $5.0 and
$10.0 billion AUM, however. Headcount rises by 1.9x
between these two bands, but AUM only doubles, not
triples. This causes the profitability per head to show
a sharp deceleration in growth, as shown in Chart 14.
Based on our model, hedge fund firms realize an
88% jump in profitability per head as they grow
from $500 million to $1.5 billion AUM. This rapid
growth continues as their assets increase from
$1.5 to $5.0 billion AUM. The next jump in AUM does
not allow for this same improvement, however; as
firms rise from $5.0 to $10.0 billion AUM, profitability
per head increases by only 18%. One key factor
accounting for this slowdown is a dramatic shift in
the ratio of investment management to investment
support personnel.
Slowing Expansion of the Investment
Management Team
Chart 15 shows a steady progression of growth in
investment management personnel as AUM increases
from $100 million, to $500 million, to $1.5 billion
and to $5.0 billion. In each instance, the number of
investment management personnel—a figure that
encompasses research analysts, traders and portfolio
managers—nearly doubles. In line with that, there is
an average $42 million increase in the amount of AUM
per head being managed.
Our model shows that AUM per investment
management head increases by $38 million as firms
grow from $100 to $500 million AUM; by $43 million
as they grow from $500 million to $1.5 billion
and by $45 million as they grow from $1.5 billion to
$5.0 billion AUM. If the pattern in headcount growth
and average AUM being managed per investment
management head were to continue, the number of
investment management personnel should increase
from 34 to about 68 heads, and the AUM they are
managing per head should increase from $151 to
about $193 million as firms move from the $5.0 billion
to the $10.0 billion AUM level.
Instead, the pattern partially breaks. There is a rise in
AUM per head fairly close to the indicated level as total
AUM per investment management head increases
from $151 million to $211 million, but to achieve that
Chart 14: Profitability per Head
(Based on Operating Margins & Average Management Fee Collections)
Source: Citi Prime Finance. Total dataset examined (124 firms, $465 billion AUM)
-$200K
$
$200K
$400K
$600K
$800K
$1.0M
$1.2M
$1.4M
-$86K
$203K
$382K
$628K
$742K
$1.4M
$100M
$500M
$1.5B
$5.0B
$10.0B
>$10.0B
Average AUM $36.4B
PROFIT