Alternative Investments Q50

0. A hedge fund had invested capital of 200 million on which it earned a return of 35% in its first year. It follows a 2 and 20 fee structure and calculates the incentive net of management fees. The total fee for the hedge fund in the first year is closest to:

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Option : C
Explanation : Invested capital = 200,000,000
Value of fund after a year = 200,000,000 * 1.35 = 270,000,000
Management fee = 270,000,000 * 0.02 = 5,400,000
Incentive fees = (270,000,000 – 200,000,000 – 5,400,000) * 0.2
= 12,920,000
Total fee = 5,400,000 + 12,920,000 = 18,320,000.

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