1. Senior management needs to be on board with the fact that the on-platform managers will get compensated in a manner somewhat similar to external hedge fund managers. Sure, the structure of the comp plan may be different but in order to guard against adverse selection (what top manager would possibly want to be inside a bank?) the comp levels have to be “market.” This means you may have an “employee” that makes many times more than the CEO of the whole institution. And that’s ok – that is if your culture can handle it and if you want to be successful. Otherwise, don’t play.

2. Senior management needs to be on board with the fact that these managers may, at some point, want to set up their own shops and have their own name on the door. This has to be ok – if it’s not, then you are instantly creating a win-lose situation which the institution will invariably lose. Create a flexible platform that can accomodate a successful manager “spinning out” with the support of the firm, provided that the bank has guaranteed capacity rights, the ability to monetize their capacity down the road, etc. In fact, my sense is that it is the unusual manager that has an attractive long-term track record that does not want the “ego food” of running their own show. Unless the are really introverted, hate dealing with business operations and investors and/or don’t have a great President/COO. In this case it may be better to be on someone else’s platform, give up a little economics but be 100% focused on investing.

3. Have the operation domiciled within Asset Management and not the broker/dealer. Potential conflicts, real or perceived, can place inordinate stress on legal, compliance and business management when this business, even if walled off from the b/d, still rolls up into the b/d.

I could say much more but think this gets at the core of the issue. Bottom line is yes, senior management needs to have a clue about “what makes managers tick.” Without this the effort, regardless of the resources thrown at it, is doomed to fail. However, if senior management DOES get the joke, then this can be one hell of a profitable and scalable business.