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2013 Business Expense Benchmark Survey
Completing the Institutional Journey: Moving
from $5.0 Billion to $10.0 Billion AUM
Enhancements to the platform continue as hedge
funds move from $5.0 to $10.0 billion AUM, with
our model showing overall spend across investment
support and business management rising from $21.7
to $55.0 million. This equates to a 2.54x increase
in expenditures versus a 2.0x increase in AUM,
demonstrating that hedge funds at this level of AUM
remain in an investment mode. Where spending
increases occur is illustrated in Chart 11.
Increased expenditures in the business management
category account for the single largest rise at $13.2
million — 40% of the total $33.3 million more spent
by firms with $10.0 billion AUM versus those with $5.0
billion. Delving into the stated business management
expenses of firms at both AUM points, it became
clear that outlays on real estate escalate sharply.
Whereas the average amount spent on real estate
by firms with $5.0 billion AUM was $2.1 million, that
figure jumped to an average $8.6 million for firms
with $10.0 billion AUM.
Geographic expansion is a key characteristic of firms
at the $10.0 billion AUM level. The vast majority (83%)
of the hedge funds in our survey with $5.0 billion
AUM had 2 offices: 1 office in the U.S. and 1 office in
the United Kingdom. Survey participants with $10.0
billion AUM were more global, with 85% of the firms
noting that they had offices in at least the U.S., U.K.
and Asia. Moreover, their presence in the U.S. was
more developed, with an average of 2.3 offices.
As a firm’s footprint firm increases, there is an
increased need to have business management
personnel in key offices to oversee the expansion.
Business management personnel increased from
8.6 to 18.6 heads on average in our models, as firms
rose from having $5.0 billion to $10.0 billion AUM.
Projected compensation tied to business management
increased 253% from an estimated $2.1 million to $7.6
million as a result of these gains.
Rising outlays on technology were the other major
contributor to increased spending at the $10.0 billion
AUM level. Of the backbone costs for a firm, the
expenditures on networks, hardware and software
jumped 77% to $6.5 million versus $3.7 million for
firms at the $5.0 billion AUM threshold. Compensation
expenses also rose sharply by 167%, from $2.2 million
for firms at the $5.0 billion AUM level to $6.0 million at
the $10.0 billion AUM mark as technology headcount
increased from 8.8 to 26.3 individuals.
Our model shows that, having reached the $10.0
billion AUM threshold, firms conclude their period
Chart 11: Institutional Firms’ Management Company-Level Expenses
(Investment Support & Business Management)
+$4.29M
+$4.73M
+$760,774
+$1.72M
+$13.24M
+$8.54M
+ $33.28M
$
$4M
$6M
$8M
$10M
$12M
$14M
$16M
$18M
$20M
Marketing
Operations
Risk
Compliance Business Mgmt Technology
Source: Citi Prime Finance. Management company expenses exclude expenses charged back at the fund level and excludes compensation
and third party expenses for investment management. Total dataset examined (44 firms, $125 billion AUM)
$5B FIRM $10B FIRM
$2M
EXPENSES