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Alternative Investments Q52

0. A hedge fund begins the year with $200 million and earns a 20% return for the year. The fund charges a 1% management fee on end- of-year fund value and a 10% incentive fee on the return, net of the management fees, that is in excess of a 10% fixed hurdle rate. The fund's investors' return for the year, net of fees, is closest to:

  • Option :
  • Explanation : Value of fund after a year = 200, 000, 000 / 0.2 = $240million.
    Management fee = $240,000,000 x 0.01 = $2.4million. Incentive fee net of
    management fees and in excess of 101.76 million
    Investor's return, net of fees = (240 - 200 - 2.4 - 1.76) / 200 = 17.92%
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