What does the hedge fund manager get out of the deal?
Over the past several years (with the exception of the last couple), the economy has created an increased number of individuals that meet the criteria for investment in a hedge fund. A hedge fund investor needs to be a sophisticated investor that understands the risks associated with the fund. Since more people are eligible, the media has identified to the general population that hedge funds are both performing well and are available to individuals. Your prospective investors may just be waiting to have someone ask them to invest in a hedge fund. The income that a hedge fund manager can earn can be substantial. Let’s assume you have $2 million under management and your hedge fund has a 1-percent management fee and a 20-percent performance allocation. We will also assume the fund started the first day of the year and the gains at year-end were 30 percent. Under these assumptions, the hedge fund manager would have gross income of $140,000. That is comprised of a $20,000 management fee ($
