Alternative Investments Q61

0. SHM 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 fee structure specifies a hurdle rate of 8% percent and the incentive fee is based on returns in excess of the hurdle rate, what are the fees earned by SHM assuming the performance fee is calculated net of the management fee?

Answer
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Option : A
Explanation : Management fee = $256 million * 0.03 = $7.68 million
Incentive fee = ($256 – $200 – $16 – $7.68) million * 0.15 = $4.848 million
Total fees to SHM Capital = $12.528 million

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