Large Investors Get Bargains

Fund clients that invest a lot of money always get good deals. Nowadays, with raising capital tougher than it used to be before the crisis, big investors are getting even better terms.

Managers give varying fee discounts with the amount of the investment. Some managers can still get a 2% management compensation but many settle for 1% if the customer  brings more capital to the fund. Others go below 1% depending on how much money is involved.

Investments of more than $20 million may get charged 0.65% for the management fee. But managers of large funds are more likely to want $30 million to $50 million to lower the management fee, says an investor.

Incentive fees are also negotiated down by big clients. While 20% of profits used to be common, managers increasingly agree to 10% and even 5%.  To get paid any incentive fee, the manager usually has to deliver returns beyond  the high-water-mark, that is the highest net asset value previously attained—any losses have to be made good first.

If the manager shuts down a money losing fund and starts a new one, some investors will demand that the manager make back the losses of the previous fund before getting an incentive fee

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