Funds are an extremely lucrative way to make money.
And for the past 4 years I have been running my funds I have seen the power of scalability.
My first fund was roughly $50K dollars.
Not even pennies compared to some of the largest funds in the world.
But because I managed that $50K correctly I was able to gain the trust of more investors and raise millions of dollars since then.
The best thing is that as a manager I am paid on percentage…
Meaning that the more money I can raise and deploy, the better my take home profits will be.
So today let’s talk about how that works and how you could be doing this same exact thing.
Breaking Down Fund Manager Pay
One of the most popular methods of taking profits for hedge fund managers is by using the 2%/20% method.
Meaning that there is a 2% management fee taken off of the top and then keeping 20% of the carried interest of the fund.
Note: Carried Interest is the profits or the the return made on the money in the fund.
Let’s look at a quick example…
In the picture above we see a return timeline ranging from 0% – 20% in returns.
In funds there is something called the preferential rate of return, also called a hurdle rate.
This pref. rate is the percentage that will go entirely and directly to the Limited Partners, or investors.
You don’t get any of this money.
However, the 2% management fee is not included in the pref and is instead taken directly off of the top.
Once we get past that pref rate of 8% the fund manager will then take 20% of the profits thereafter.
If you had a $100K fund you would take $2K off the top as a management fee.
If your fund got a 10% return then $8K of that would go directly back to the investors and you would get 20% of the remaining profit.
So a $10K return minus $8K equals $2K.
20% of $2K is $400.
$2k Management Fee plus $400 in returns equals $2400 total.
Now you might think that managing all of that for a mere $2.5K isn’t worth it,
And for someone like me who chooses not to take a management fee I can tell you that it isn’t.
Unless you scale…
Imagine you now run a fund of $20 million.
That $2.4K now becomes $480K!
That’s only with a 10% return…
When we are running our funds we are looking for more than 20% returns.
Now our profits are over a million dollars.
Can you see how this can be so lucrative?
The key to funds is taking care of other’s money. When you focus on getting good returns for your investors you will not only bring in more money but will be able to raise more money as well.
Funds are an amazing way to build wealth.
That’s why many of the wealthiest people in the world run and manage funds.
However, in order to manage a great fund you need to think of your investors’ returns first.
Don’t get greedy!
At the end of the day you are making money for them.
The great thing is that the more money you make for them the more money you will then make for yourself.
If you are interested in starting a fund please reach out in our free facebook group below or visit my free training.
What do you think are some things that might be stopping you from unlocking this lucrative wealth building strategy?
Let’s overcome those and get you on the path to freedom!
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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.