Question

For example, imagine a hedge fund managing $200 million with a 2% management fee and a 20% performance fee benchmarked to the S&P 500 total return. If the fund earns a 6.5% return in a year when then S&P 500 total return was 7%, what is the after-fee return for investors? How much does the fund make in fees (dollar amount)?

Answer 1

The solution is as follows:

1 The 20% performance fee is the biggest I source of income for hedge funds. The performance fee is only charged when "The fund's profits exceeds a prior agreed - upon leveléie. In the above sum it is benchmarked to the S&P 500 total return (7%). That means, the hedge fund only charges the 20% performance Jee if the profits for the year Swepass the fol level. But in the above sum, the fund earned a 6.5% return in a year Thus, We can say that the fund under- performed than its benchmark. dog 2014_performance fee won't be charged. However, no such conditions apply to normal fund management féle

1 Thus, the fund makes in fees (dollare amount) is ;- $ 200 Million X2%: - $4 Million The after- fee return for investore isi ($200 Million X 6.5:1) – $ 4 Million = $ 13Million – $4 Million $ 9 Million 09, 20 X 100 = 4:57. b.a.