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I have two words for you: two and twenty.

The first refers to the 2% Management Fee and the second refers to the 20% Incentive Fee. 

On an asset base of  $1 MM, that's $20,000 in management fees that you'll receive over the course of the year in $5,000 quarterly payments. 

The profit allocation or Incentive Fee is what you're working for though...

That's your share of the net trading gains above the hight water mark. 

If you earned 15% in net trading gains, you'd be entitled to 20% of that. 

For example, if you garnered $150,000 that would mean $30,000 to you in Incentive Fees...in addition to the Management Fees. 

Then you continue to grow your money alongside the client funds at the same rate and you can see how your wealth expands geometrically. 

Always play superior defense though: whatever drawdown you incur, you have to earn that back before you begin to participate in the profits. 

You only get paid on absolute returns :). 

Key takeaway: use other people's money.

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