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Example budget
Below we share three budgets from excellent firms. The first is from a London-based emerging manager MIT partnered with at launch. The second is from a US-based emerging manager MIT partnered with at launch, who started with more substantial AUM. The third is from a US-based emerging manager that MIT is not invested with, but whom we know and admire.
In our experience working with small managers, there are a lot of costs that are not truly essential. If necessary, you can run without a lot of nice-to-haves like outsourced admin help and useful but expensive research tools. You can deliver excellent returns with a lean budget - trust us, we have seen plenty of people do it!
If you started with low AUM and ran successfully on a lean budget with good performance, and are willing to share your budget and any start-up operational advice, I would be happy to add it to this page. You can email me at the link on the contact page. Some non-US or London-based examples would be very welcome.
Example 1: The below is from a London-based emerging manager MIT partnered with
I started with just over GBP 3 million and capped expenses at 2%. So initially I just charged the 65k and then when MIT joined I took the expense ratio a little lower and had the same expenses as above and took a GBP 60k salary. As we raised money I took a more normal salary whilst passing back some scale to shareholders.
What was most helpful at that time was a) I drove service providers down hard with the idea they were backing me to succeed b) my life costs were very low. My biggest advice to anyone wanting to start a fund is to keep life cost very low, it gives you huge advantages on not needing to be big quick. I started my fund a few years out of college and I just avoided letting my life costs grow very much in those few years.
Initial budget for my GBP 3 million fund:
- GBP 18k admin costs
- GBP 11k audit costs
- GBP 12k non-exec fund director cost
- GBP 20k FCA compliance/regulation costs
- GBP 4k office costs
Total costs pre-salary: GBP 65k
Total costs including salary: GBP 125k
Example 2: Shared by a US-based emerging manager MIT partnered with
The below annual budget, which is copied below, was also shared by the same US-based MIT emerging manager who shared the steps required to set up a fund. He pointed out that this could definitely be leaner if they wanted to skip the outsourced CFO and compliance help, which is nice to have but not essential. This firm had the good fortune to start with reasonable AUM so had more budget flexibility.
- Admin/custody - fund expense
- Compliance (Optima Partners) - $20,000
- Outsourced CFO - $50,000
- Legal for mgmt co and GP (1) - $25,000
- Sentieo/Adobe/Dropbox/Slack/Microsoft- $20,000
- Travel (3) - $60,000
- Tegus subscription/other expert network calls/other research - $65,000
- Rent (4) - $0
Sub-total operating expenses (excluding salary) $240,000
(1) includes deal costs for privates, as well as GP and mgmt company legal expenses
(2) much higher if one needs Bloomberg
(3) includes a fair amount of international travel
(4) working from home
Example 3: Very lean budget example - written by a US-based manager
The US example seemed really expensive to me, so thought I'd share my experience for the benefit of folks just starting out.
Our expense base our first few years (launched in 2012 with $2.1m aum)
- legal & entity formation, including blue sky filings: $16.1k upfront (I amortized to investors over 5 years)
- 3rd party fund admin including year-end financial statements: $7k/year (NAV Consulting, the best service provider I've worked with)
- audit & taxes: $9k/year (I skipped the first 6 months and did 18 month audit; got emerging manager discount with a tier 1b auditor, used a very cheap accountant)
- ongoing legal (fees, etc): $4k/year
- research: $4-5k/year
In total we had $27k of expenses in our first year - which is manageable, but still too high as a % of AUM. I always wanted to make concentrated potentially illiquid investments (and ended up investing in private companies over time) so that's why I did an LP structure. If I were doing it as a stockpicker I would just do managed accounts with IB which eliminates significant expenses (no audit, no 3rd party admin, much cheaper legal formation costs).
If you started with low AUM and ran successfully on a lean budget with good performance, and are willing to share your budget and any start-up operational advice, I would be happy to add it to this page. You can email me at the link on the contact page. Some non-US or London-based examples would be very welcome.
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