Alternative Investments Q68

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. In the second year, the fund value declines to $225 million. In the third year, the fund value increases to $250 million. If the incentive and management fees are calculated independently and also includes the use of a high water mark, what is an investor’s net return for the third year?

Answer
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Option : B
Explanation : Investor return = 10.42% The ending capital position at the end of Year 3 is $240.988 million. This is the new high-water mark

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