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Up6
A hedge fund has a beginning year value of $200 million, 2% management fee, and 20% incentive fee with the hurdle rate of 10%. The fees are paid at the end of the period and the incentive fee is calculated net of management fee. If the ending value of the fund is $300 million, then the total fee of the hedge fund is closest to:
- $18.8 million
- $20.8 million
- $14.8 million
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Up0The correct answer is B.
Management fee = $300 million * 2% = $6 million
Incentive fee = ($300 million – $6 million – $200 million – ($200 million * 10%)) * 20% = $14.8 millionTotal fees = Management fee + Incentive fee = $6 million + $14.8 million = $20.8 million
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