Question

A hedge fund has AUM of $ 100 million at the beginning of the year and...

A hedge fund has AUM of $ 100 million at the beginning of the year and earns a 20% return for the year. The fun charges a 2 % management fee on end of year portfolio value and a 15% incentive fee on the return , net of the management fees , that is in excess of a 6 % fixed hurdle rate. what is the total fee charged by the fund manager? plz be specici write the fomulas also .

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Answer #1

VALUE OF THE PORTFOLIO AT THE END OF THE YEAR = 100 X (1+0.20) =120

MANAGEMENT FEES WILL BE = 2% (120) = 2.4 MILLION

INCENTIVE FEES= [(VALUE AT THE END - VALUE IN THE BEGINNING - MANAGEMENT FEES) - (VALUE IN THE BEGINNING X FIXED HURDLE RATE)] X 15%

INCENTIVE FEES = [(120 - 100 -2.4 ) - (100 X 6%)] X 15%

INCENTIVE FEES = [17.6 - 6 ] X 15% = 1.74

SO TOTAL FEE CHARGED BY FUND MANAGER = 2.4 + 1.74 = $4.14 MILLION

ANSWER = $4.14 MILLION

ANY DOUBTS, FEEL FREE TO ASK

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