You are a high-prestige hedge fund manager and thus, you are interested in your
ID: 2615683 • Letter: Y
Question
You are a high-prestige hedge fund manager and thus, you are interested in your annual total fee. You have managed a fund with a NAV of $500,000,000 at the start of the year 1. At the end of the year 1, the assets are $700,000,000 worth. There is no hurdle rate and the fund is a HF 5.1/40 . (a) Calculate your single fees and your total annual fee! " Now assume that the hedge fund's NAV from the end of year 1 (assume that it is $700,000,000) decreases by 20% in year 2, it increases by 40% in year 3, it decreases by 50% in year 4 and it finally increases by 100% in years. The distribution of fees is already considered (simplification) (b) Determine the High-water mark(s) between year 2 and year 5!Explanation / Answer
1) Single Fees = 500000000*5.10% = 25500000
Annual Fee = (700000000-500000000)*40% = 80000000
2)
Year 2 Beginning balance $70,00,00,000.00 Ending balance $56,00,00,000.00 Closing adjusted balance(Ending balance - Beginning Balance) $56,00,00,000.00 Profit/Loss from trading ($14,00,00,000.00) High water mark $70,00,00,000.00 Amount above the HWM ($14,00,00,000.00) 40% Performance (incentive) fee $0.00 New high water mark $70,00,00,000.00 Year 3 Beginning (after fees) balance $56,00,00,000.00 Ending balance $78,40,00,000.00 Closing adjusted balance(Ending balance - Beginning Balance) $78,40,00,000.00 Profit/Loss from trading $22,40,00,000.00 High water mark $70,00,00,000.00 Amount above the HWM $8,40,00,000.00 40% Performance (incentive) fee $3,36,00,000.00 New high water mark $75,04,00,000.00 Year 4 Beginning (after fees) balance $75,04,00,000.00 Ending balance $37,52,00,000.00 Closing adjusted balance(Ending balance - Beginning Balance) $37,52,00,000.00 Profit/Loss from trading ($37,52,00,000.00) High water mark $75,04,00,000.00 Amount above the HWM ($37,52,00,000.00) 40% Performance fee $0.00 New high water mark $75,04,00,000.00Related Questions
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