Putting some real numbers around this provides more color. A fund with $200 million in AUM and zero or negative performance would generate revenue of $3 million. A return of 5% bumps the total revenue up to $5 million. With a return, the fund’s revenues are $6 million: $3 million from the management fee and $3 million from the performance fee. Beyond the performance mark, the incentive fee becomes the primary revenue contributor. The performance fee effect is what makes the hedge fund model so appealing and unique. Where- as traditional asset management models derive revenues almost exclusively based.
