Survey Says $300M Needed To Launch New Hedge Funds

Dec 12 2013 | 2:07pm ET

It takes more than a quarter of a billion dollars to get a new hedge fund off the ground, according to a new survey by Citigroup.

Traders striking out on their own need at least $300 million in initial assets, due to increased regulatory costs and falling management fees. "Fee compression continues to reshape the business of hedge funds, lowering fees even as expenses rise, all but eliminating fee-only operating margins, and raising the level of assets needed for a hedge fund business to succeed," Citi prime brokerage chief Alan Pace said.

According to Citi, management fees have fallen to as low as 1.58%. At that level, without at least $1 billion in assets, managers must earn some performance fees to remain in the black, the bank said.

And, bad as things are in the U.S., they are much worse in Europe, where expenses are at least 20% higher than on the other side of the Atlantic—higher and rising, with new regulations poised to come into force.

The Citi survey questioned 124 hedge funds with $465 billion in assets.


In Depth

Q&A: Sancus Capital And The Disruption Of The CLO Market

Oct 5 2017 | 6:28pm ET

Traditional collateralized loan obligation (CLO) funds in the U.S. market can offer...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Finding Success as Alternatives Converge

Oct 9 2017 | 4:00pm ET

Rising interest among institutional investors over the past several years has led...

 

From the current issue of