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The Business Model of Money Management
Money Management is a very good business model. I am an investor in a couple money management companies, and I hope to create a fund one day where I can manage money for other people as well. In this article, I want to discuss the business model of money management and fund management.
A money manager will usually collect around .25%-1% of the money under management. If one is managing a $10 million portfolio, they would collect around $25,000-$100,000 off of that. A lot of money management companies, however, are making a lot more money than that as they are managing hundreds of millions to billions of dollars. Blackrock is the largest money management company in existence with around $10 trillion dollars in assets. If one can get enough money under management, they can make some serious money, and considering the fact that one is collecting a fee off of the total amount under management, money managers are incentivized to grow that money as much as possible so that they can earn more money.
With funds, the percentages are much different depending on the fund. With a venture capital fund (a fund that invests in startups), most funds get 2% of the initial investment plus 20% of the carry. Venture Capital investing can be very fruitful if done right which is why the fees are so high. Exchange Traded Funds (ETFs) usually have much lower fees. According to Morningstar, the average ETF fee was .23% in 2016. The fee mostly depends on what the fund does and who it is with. Vanguard, for instance, has very low fees while Ark’s are much higher. ETFs usually have more money to manage than everything else I've mentioned which is a big reason for the lower fees.
Anyways, the point is, money management can be an insanely profitable business model.
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