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How big is the fund?
I don’t think this is enough info. How big is the fund? What is their track record? Why vol/return do they target in a given year? Is it PnL or fees? Are they growing or trying to? Etc.
I would generally view this as the expected dollars at expected performance (including growth if it is a new fund).
Hey there - it's an emerging market long only fund, <$500Mn, < 5 years old, aiming for a 15-20% net return CAGR. This carry is on the P&L of the fund (management + performance fees less fixed expenses like salary, office costs, research budget etc). Aiming to be a billion dollar fund "someday".
You're still missing critical information. If it's a LO strategy, what fees do they charge? Do they even have a performance fee? How many investment professionals?
Needless to say, to start with you should take the 15-20% target return and haircut it by at least half.
As have been noted by another person: 1) what is fee structure? 2) how many people? 3) cut that estimate in half, long only with 20% returns? That doesn’t seem likely. 4) any idea on ACTUAL performance (over the last 5 years and ytd)? 5) any idea on costs? It is less about the 1% they are offering but more about all the other questions, 1% at a $10bln fund is very different than $500mm.
Simple example, if they return 10% and collect 20% fees (unlikely at long only) you have $10mm in fees (performance), of which you get $100k. Is that good? I wouldn’t think so, but I don’t know your full background and expectations.
Let's keep aside the track record aside for a moment. I am trying to figure out the intent - is 100-125bps a signal of good intent for a <$500Mn fund, in the sense that the manager is happy to share profits? Or are they being stingy? Is it common at other funds - where you get a certain % of the P&L. I am trying to figure out if there are any benchmarks here.
Since I am in an emerging market, the absolute dollars are not as important. With $2Mn you can retire here, but that's maybe a starter home in the US.
I’m trying to help but you aren’t answering the questions so it’s hard. Fee structure matters. If they charge 0.1% fees and the founder pays themselves a high base (say the full fixed fees) then they could share 50% and it wouldn’t matter to them - you see what I’m getting at? Cheap or not depends on the fund financials, as an example, I know my fund financials, and your deal would be good but it’s a completely different (headcount, number of partners, risk you are taking). Answering this question without context isn’t possible. And removing track record is insane, that’s part of what you are basing this decision on (will this fund be around in 1 year? 2 years?). Also, the comparison to other opportunities matters too
Anyway, for an established fund it is a good deal, but I wouldn’t take it (not enough info and too much risk vs reward).
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