Alternative Investments Q60

60SHM Capital is a hedge fund with $200 million of initial investment capital. They charge a 3 percent management fee based on assets under management at year-end and a 15 percent incentive fee. In its first year, SHM Capital has a 28 percent return. Assume management fees are calculated using end-of-period valuation. What is an investor’s effective return if the incentive fee is calculated based on return net of the management fee?

Option : C
Explanation : Investor’s return = (256 − $200 − $14.928)/200 = 20.54%

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