Fund management is essentially the control and implementation of investment strategy on all the trading and activity on an investment portfolio. In other words, it’s the management of capital provided by third parties into a single vehicle, organized as a separate fund. The vehicle is typically a limited partnership, but it can also be a limited liability company.
The world of fund management has gotten increasingly complicated dover the last 30 years and the complexity often requires a larger staff in order to manage the fund appropriately and also a cadre of service providers, accountants and lawyers. As a result the cost of managing a fund make it uneconomic for a fund to be small. A fund would typically be considered “small” if its assets under management were under $100 million, and be considered “large” if the assets under management were over $500 million.
Who manages a fund?
Typically, a fund is management by the general partner (GP) of the limited partnership (LP). But it can also be managed by a different entity. It’s all a matter of the contract, the parties involved, and how it’s legally organized.
The typical fund arrangement is that the manager collects and annual management fee of 1-2% per annum and has the right to receive up to 20% of the net profits of the fund as incentive compensation.
How does Fund Management work?
The general partner provides the initial development capital to get to the first closing. Each closing of the fund allows a drawdown of 1% of the capital in advance. Sometimes that advance is paid back, sometimes it is not.
GP vs. LP:
The limited partners are typically institutional investors but often include family offices.
The general partners are typically people who wish to devote their full time to managing capital of investors.
The general partner makes the determinations of investments after appropriate due diligence, discussion, and management committee decision making.
What is the difference between asset management and fund management?
Asset management is a broader category that includes in addition to funds, assets of individuals, trusts, and companies that require management to some degree. So asset management is often accomplished simply by a manager managing assets placed in trust with the manager, and a formal fund is not created that is actively managed. This typic
Because of this, asset management typically involves lower fees, often no more than 50 basis points per year. However, sometimes, fees can be as high as 1% per year.
What are the objectives of fund management?
The primary objective is to allow individual investors to participate in actively managed portfolios and the higher returns expected.
To be successful in today’s world as a fund manager, the fund must be larger than is anticipated at the offset. This is due to the increasing expenses as a fund manager. I would counsel any new fund managers to think through the size of their fund and their team to ensure to two are well matched.
What is the process of becoming a fund manager?
Anyone can become a fund manager, as long as he or she can raise sufficient capital to have a successful first closing of the fund.
The GP’s are subject to due diligence by all limited partners, or investors. The GP of VC funds are exempt from certain US securities law regulations, however, in other cases the fund managers are regulated by the government and must meet certain filing and other requirements.