At what size does a fund make economic sense
“A fund pays fixed costs in exchange for being regulated and therefore credible. Below a certain size, costs consume the return. So the question is not ‘can I have a fund?’, but ‘does it make sense from a cost perspective?’”
Key points
Two figures every founder needs to know at the outset:
• Minimum fund capital: EUR 1,000,000 / 1,250,000 within 12 months of establishment — otherwise the fund risks dissolution. This can be met in cash or by contributing assets (e.g. existing assets).
• The economically reasonable minimum is usually significantly higher. In practice, major fund managers recommend starting at around CZK 200m in assets, so fixed costs do not outweigh returns + the fund remains viable.
Why size matters — fixed vs. relative cost logic:
• A large share of fund costs is fixed (administration, depositary, audit, ČNB (Czech National Bank)). They are similar for a CZK 100m fund and a CZK 1bn fund.
• The remaining costs depend on assets under management (AUM), usually as a % fee for the fund manager.
• The smaller the fund, the larger the share of returns consumed by costs.
• Rule of thumb: keep costs below 1.5% of AUM per year, leaving room for net returns for investors and the founder.
• Funds below CZK 200m do not make economic sense.
Illustration: how fund size changes the cost ratio
* actual figures depend on the investment company, asset type (real estate / securities), number of transactions, and number of any sub-funds.
Questions the founder should answer:
• Do I have assets to contribute, or can I realistically raise at least ~CZK 200m within 1–2 years?
• What net return can the strategy realistically generate? Can it cover the fund’s costs and still leave a reasonable profit?
• Do I have assets to contribute (real estate, stakes) worth tens of millions of CZK, or am I relying solely on investors’ money? If solely on investors’ money, it does not work — I need to show “skin in the game” and have assets of my own.
• How much will setup cost (one-off costs), and do I have enough for the first ~12 months of operation before capital comes in?