By: Benjamin R. Arnold 

Hedge Funds and Asset Managers Renew Focus on Cost 

Hedge funds are operating in an environment where every dollar of cost is scrutinized more closely than ever. Allocators have become more sophisticated in how they evaluate a manager’s operating model, and questions around cost discipline now sit alongside performance, liquidity, and governance in due-diligence conversations. Managers feel this pressure directly: the expectation is to run a global, multi-asset trading operation that is institutional in quality while keeping costs lean and adaptable. 

One area where costs tend to balloon is the trading desk. Salaries, benefits, infrastructure, trading systems, data feeds, and geographic coverage do not change in tandem with AUM and trading velocity fluctuations. They remain fixed, regardless of the trading volume. As firms expand into new regions or asset classes, the cost curve steepens sharply—often faster than the business itself is scaling. 

At the same time, investors are rewarding managers who demonstrate operational efficiency and the ability to strategically deploy limited management-company resources toward the most alpha-generating functions. As a result, CIOs and COOs are re-examining long-standing assumptions about how trading desks should be structured, staffed, and financed (e.g., build, outsource, or supplement) 

This article explores how a modern outsourced trading model helps managers reshape their trading desk cost structure to be more aligned with actual trading and, enabling the manager to scale instead of saddling them with onerous fixed costs.  And all without sacrificing control, the manager’s street and broker relationships, or the domain expertise required to trade globally. Cost consciousness is now a strategic imperative for asset managers, and trading is one of the highest-impact areas where that discipline can be applied. Traditionally, Trading Desks Represented Fixed Costs for the Fund 

For businesses in general, not just hedge funds and asset managers, managing costs effectively has always been a crucial aspect in running a successful business. One of the biggest challenges fund managers face is the fixed cost burden associated with maintaining an internal trading desk. Regardless of the fund’s turnover, associated trading desk costs such as salaries, bonuses, office space, healthcare, technology, and support remain constant. The cost burden remains the same in the best case, but generally it keeps increasing year after year. 

These fixed costs can expand very quickly, and while passing them through to investors has become more common, it can consume a large share of investor returns. 

Now, consider a fund that invests in global credit and equities. Funds that trade across regions or asset classes need multiple traders with specific market expertise and additional data and technology to support them. US based firms trading Europe and Asia markets typically need to hire multiple in-house traders to achieve the same level of coverage and expertise in those geographies. 

Due to time zone differences, a properly staffed global trading desk should have at least 3 traders covering global markets to ensure backup trading continuity is in place during vacation or in the event a trader departs for another opportunity. New traders take time to acclimate and train. What’s worse is that even in a low-volatility market regime, with relatively low trading volumes, the fixed costs remain. Traders still expect compensation and bonuses regardless of trading velocity.  

And as we know, good traders command higher compensation and are hard to find, and in our opinion, worth every penny. As the internal desk grows, these expenses increase the fees, reducing the total gains investors see at the end of the day. 

How Outsourced Trading Transforms Fees from Fixed to Variable 

Outsourced Trading (OT) offers a compelling alternative to fixed trading desk costs for hedge funds and asset managers: a variable cost model. By converting fixed trading costs into variable ones directly tied to trading velocity, the fund avoids paying for traders’ idle time. Rather than maintaining costly internal desks with perpetual overhead, fund managers who choose outsourced trading services pay only for the trading they utilize in any given year. This shift in cost structure aligns expenses with fund activity and enables fund managers to reallocate management fees toward strategic growth initiatives like additional analysts, technology investments, and/or enhanced portfolio and risk management capabilities. This would drastically reduce the passthrough fees that investors closely scrutinize.  

Below is a hypothetical comparison of the costs associated with an internal trading desk versus an OT services model like Meraki.  

Assumptions: 

AUM: $500mm

Turnover: 1x, 3, 5x annum

Payment: Mngt Fees

OT paid via fund expense

Here is the main difference in cost structure: as you can see in the above chart, the costs with a traditional trading desk are fixed. You need to pay salaries, benefits, and bonuses regardless of how often you trade in a given year. In contrast, with OT, your costs are variable, depending on the volume and quantity of shares traded (velocity). They can be lower or higher in any given year, depending on how much the portfolio turns over. The benefit of this structure is that you only pay for the trading you need, and we feel that overall, it adds up to significant savings for the average fund manager.    

Running an internal trading desk means having the following items in a fixed cost structure: (Lower Bar on the chart) 

• Trader Salaries & Bonuses – Senior, mid-level, and junior traders are paid base compensation, regardless of fund performance and bonus depending on performance. 
• Employer Taxes & Benefits – Payroll taxes, healthcare, and other benefits add a layer of costs. 
• Technology & Market Data – Bloomberg terminals, OMS (Order Management Systems), compliance software, and other trading infrastructure are necessary. 
• Support Functions – IT support, compliance monitoring, and operational support are additional overhead expenses. 

In contrast, OT contracts are normally priced based on the average turnover in any given year (Three Green Bars in the chart above) 

• Lower costs overall compared to an in-house team, especially in low turnover cycles. 
• No fixed salaries, bonuses, or infrastructure costs. These costs are shouldered by the OT partner. 
• Global coverage with experienced traders and backups without the need to staff an international desk. 

Which model is Right for You? 

The decision between building an in-house trading desk or outsourcing your trading boils down to two critical factors: cost efficiency and investment process. Internal desks come with high fixed costs, while outsourced trading offers a scalable, variable model that aligns expenses with actual trading activity.  

The primary value of a hedge fund lies in its investment strategy, team, and process. The trading desk, while crucial for implementing and expressing that strategy, is more of an operational and business function that supports the core activities of the investment team.   

For hedge funds and asset managers looking to optimize their cost structure while maintaining full control over their trading operation, outsourced trading presents a compelling alternative—one that reduces overhead, preserves management fees, and enhances overall trading efficiency. In an environment of heightened investor scrutiny over fees, it’s a welcome change. 

If you’re interested in exploring how outsourced trading can work for your fund, click below. 

Meraki Global Advisors LLC is a FINRA registered broker-dealer and member of SIPC headquartered in Park City, UT. The content provided herein is not an offer, solicitation or recommendation of any securities. Meraki and its representatives make no investment recommendations whatsoever. Past performance is not an indication of future results. This document may not be duplicated or copied, is protected by copyright law and may contain privileged or confidential information. Information contained herein does not constitute tax, legal or other professional advice. Content is for informational and educational purposes only. All rights reserved 2026.