Alternative Investments Q57

57SHM 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. If the incentive and management fees are calculated independently, the fees earned by SHM is closest to:

Option : C
Explanation : Value of the fund at the end of year = 200 * 1.28 = 256
Management fee = $256 million * 0.03 = $7.68 million
Incentive fee = ($256 – $200) million * 0.15 = $8.4 million
Total fees to SHM Capital = $16.08 million

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