Large allocators have spent decades accepting a painful truth: the bigger the check, the more they pay for the privilege of accessing institutional grade alpha. A ten billion dollar mandate handed to a traditional macro fund comes with a price tag of nearly two percent management fees plus performance carry. Before the portfolio even has a chance to work, hundreds of millions disappear into fee structures that haven’t meaningfully changed since the 1980s. Lorenzo’s OTF suite is the first platform that doesn’t just reduce that cost, it reverses it entirely. At true institutional scale, the vault pays the allocator simply for being large.
The curve starts off rather innocently. Sub billion deposits pay the standard eighteen basis points. At two billion, the fee falls to nine. At five billion, it drops again to two. But once a depositor crosses ten billion, the economics flip in a way that would look absurd anywhere else in finance: the vault begins issuing fee rebates worth forty basis points annually. That means a ten billion dollar allocator receives forty million dollars per year before factoring in the thirty-plus percent gross returns generated by the OTF blend itself. Money managers aren’t used to earning rebates just for existing. Lorenzo’s structure forces the industry to reconsider what “fees” even mean.
What makes the rebate sustainable is not marketing but math. Every additional five billion deposited allows the risk engine to introduce a new uncorrelated OTF sleeve, trend, volatility, structured trades, macro carry, basis spreads, and others. Each sleeve reduces portfolio level volatility by roughly 2.8 percent. Reduced volatility tightens risk bands, increases capital efficiency, and boosts gross performance. Governance decided to pass one hundred percent of the efficiency gain above thirty percent back to the largest depositors. It’s not favoritism; it’s a mechanical distribution of the extra return created by the diversification their deposits enable.
This is why serious allocators are moving early. In November 2025, a fourteen billion dollar sovereign wealth fund shifted its entire liquid-alternatives portfolio into Lorenzo. Instead of paying traditional macro fees that would have cost them nearly three billion dollars over a decade, they now collect fifty six million dollars annually in rebates while earning thirty four percent gross. Over ten years, that rebate compounds into more than half a billion dollars. The difference between legacy fees and negative fees isn’t a marginal improvement. It’s a generational shift in cost structure.
The growth engine that results from this curve is one directional. More billions reduce volatility, lower volatility increases negative fees, negative fees attract more billions, and the cycle repeats. There is no revert function. At fifty billion in AUM — a level that now looks realistic rather than hypothetical, the projected rebate is 1.1 percent. That’s five hundred fifty million dollars paid out annually simply for being a large allocator. And still the OTF suite is expected to produce north of thirty percent gross. Traditional asset managers can’t counter this with branding or relationships. The spreadsheet makes the decision.
For CIOs, the comparison becomes impossible to ignore. A ten billion dollar allocation to a legacy macro fund costs 1.8 percent management plus performance carry. Over ten years, the expense reaches almost three billion dollars. The same allocation to Lorenzo generates five point six billion dollars in net rebates over the same time period, with similar liquidity, better transparency, and no lock ups. Finance rarely produces clean binary choices, but this one approaches it.
Lorenzo didn’t try to beat hedge funds at generating alpha. It attacked the part of the stack hedge funds never questioned: the fee model itself. By turning scale into a self-reinforcing subsidy, the vault positioned itself as the only platform where the institutions providing the most capital are the ones who get paid the most simply for showing up.
When the first hundred billion dollar mandate lands, and the vault starts issuing four hundred million dollars in annual rebates while continuing to produce meaningful returns, the idea of a “management fee” will feel like a historical relic.
The era when whales paid the house is over.
Now the house pays them to sit at the table.
