Alternative Investments Q43

0. Zee Capital, a hedge fund with an initial investment capital of $200 million had a 40% return in its first year. At year end, a 4% management fee is charged based on the assets under management and a 10% incentive fee is charged. The management fee is calculated using end-of-period valuation. Which of the following is most likely to be the effective return for the investor?

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Option : A
Explanation : Effective Return = (Investment - Initial Capital - Total fees) / Initial Capital Total fees = Incentive fee + Management fee + $8 + (200 * 1.4 * 0.04) = $19.2 Effective Return = (280 - 200 - 19.2) / 200 = 30.4%

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