Mental Models discussed in this podcast:
- Incentives
- Skin-in-the-Game
- Accredited vs non-Accredited Investors
Please review and rate the podcast
If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.
Follow me on Twitter and YouTube
Twitter Handle: @TreyHenninger
YouTube Channel: DIY Investing
Show Outline
Key Concepts for thinking about compensating a Portfolio Manager
- Management Fees
- Management Fees are priced a percentage of the assets under management.
- A 1% management fee means that you will pay 1% of your assets being managed to the investment manager regardless of the returns you receive on your investment.
- If you have $100k invested at the beginning of the year, you’ll pay $1k in fees, if your investment doubles, and $1k in fees if your investment gets cut in half. (ignoring the weighted average effect)
- Management fees can be charged to both accredited and non-accredited investors
- Performance Fees
- Performance fees are priced as a percentage of the profit earned on investments over the course of a year.
- For instance: A 10% performance fee would provide the manager with 10% of the total profits earned during the year. If you invested $100k, and the $100k grew to $200k, then the investment manager would earn $10k. (10% of the 100k gain).
- However, if the investment fell to $50k, the investment manager would earn nothing.
- Performance fees can be charged only to accredited investors.
- Hurdle Rates
- Hurdle rates are often paired with performance fees to ensure that investment managers only earn performance fees above a certain level of return.
- For instance: A hurdle rate of 5% would mean that the profit sharing only kicks in after 5% returns have been earned for the year. In our prior example, if you invested $100k that doubled to $200k, then the “profit pool” is instead $95k, because the first $5k is exempt. The investment manager then only earns $9.5k.
- High Water Marks
- High water marking is where hurdle rates are compounded across multiple years.
- In this case, let’s assume you invest $100k, and the hurdle rate is 5% per year.
Popular Podcasts
Are You A Charlotte?
In 1997, actress Kristin Davis’ life was forever changed when she took on the role of Charlotte York in Sex and the City. As we watched Carrie, Samantha, Miranda and Charlotte navigate relationships in NYC, the show helped push once unacceptable conversation topics out of the shadows and altered the narrative around women and sex. We all saw ourselves in them as they searched for fulfillment in life, sex and friendships. Now, Kristin Davis wants to connect with you, the fans, and share untold stories and all the behind the scenes. Together, with Kristin and special guests, what will begin with Sex and the City will evolve into talks about themes that are still so relevant today. "Are you a Charlotte?" is much more than just rewatching this beloved show, it brings the past and the present together as we talk with heart, humor and of course some optimism.
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com