Hedge Answers

TonyB,
There are a lot of factors that go into determining what the break even point would be for each individual manager.  Considerations that need to be made are: what service providers are you using, will you have in house staff, how will you be trading, how will you provide information to the investors, which firm will be custodian of your assets.  It would be best to set up a budget for the management company to determine the variables and then you can see what your break even point would be.

ok MGarufi, let’s say that you manage all factors the most efficient way possible. you have the most efficient services providers.
for example, the average cost for administration and accountability is 18000 US dollars a year. lease and office let’s say 30 000. And if you keep going, the average annual cost is about 75, 000 at least. so if that is 1%, you must have 7.5 million in order to cover all expenses using the 1% management fee. Am I right?
l what is your advice?

TonyB,
Some of the costs that you mentioned above are typically paid by the fund and therefore become part of the funds performance.  Typically fund administration, audit and tax services as well as legal fees related to the funds operations are paid by the fund.  The management company is responsible for the expenses of running a business.  The expenses related to office lease and office expenses as well as any payroll costs, technology, accounting and tax services for the management compay are paid out of the 1% fee.  You are correct in that with $7.5 million of AUM there is not much fee income to cover the potential expenses.  It can be done with a lean expense budget depending on the anticipated payroll amount.

Ok Jay, thanks a lot