Alternative Investments Q54
0. The following information is available about a hedge fund:
| Initial fund assets | $200 million |
| Fund assets at the end of the period (before fees) | $225 million |
| Management fee based on assets under management | 1% |
| Incentive fee based on the return | 15% |
| Soft hurdle rate | 12% |
No deposits to the fund or withdrawals from the fund occurred during the year. Management fees are calculated using end-of-period valuation.Management fees and incentive fees are calculated independently. The net-of-fees return of the investor is closest to:
- Option :
- Explanation : The soft hurdle rate is surpassed, because the return of the fund is 12.50%. For that reason, the full fee, based on the full performance, is due Management fee = 225 million * 0.01 = 2.25million. Incentive fee = $25million ∗ 0.15 = $3.75million. Total fees = $6million. Fund assets at the end of the period after fees = 225 – 6 =219 million. Return for the investor = (219 / 200) - 1 = 9.5%.
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