It takes at least USD250m in assets for a hedge fund to be self-sustaining on its management fees alone, while the largest hedge fund firms incur significant additional costs due to complexity and size, according to the first global survey of the costs of establishing and managing a hedge fund business.
The report, 2012 Hedge Fund Business Expense Survey, was conducted by Citi Prime Finance to shed light on business expenses involved in running a hedge fund, and to provide benchmarks for hedge fund executives as well as for investors conducting due diligence into how managers run their organisations.
The survey captured data from funds based in North America, Europe and Asia and found that hedge fund manager expenditures on support personnel and third-party expenses totalled USD14.1bn in 2012, the equivalent of 65 basis points of total industry assets. These expenses include marketing, investor relations, risk and compliance, operations and technology, and business management, but do not include compensation costs for investment management personnel.
Citi Prime Finance surveyed more than 80 hedge fund firms representing USD186bn in assets under management, 8.5 per cent of total industry assets.
“The cost of running an operationally sustainable hedge fund is substantial,” says Alan Pace, global head of sales and client experience for Citi Prime Finance. “Hedge fund management firms of all sizes and lifecycle stages need to pay close attention to business expenses to the benefit of their firms and their investors.”