Alternative Investments Q53
0. The following information is available about a hedge fund:
| Initial investment capital | £200 million |
| Return at the end of one year | 15% |
| Management fee based on assets under management | 2% |
| Incentive fee based on the return net of the management fee | 10 |
Assume management fees are calculated using end-of-period valuation.The investor's net return given this fee structure is closest to:
- Option : B
- Explanation : Management fee = 200 * 1.15 * 0.02 = £4.6 million Incentive fee = (230 -200 – 4.6 million) * 0.1 = £2.54 million Fund value after fees = £230 million – £4.6 million – £2.54 million = £222.86 million Investor return = (222.86 million / 200 million) - 1 = 11.43%
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