CFA CFA Level 1 Question of the Week – Alternative Investments

Question of the Week – Alternative Investments

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    • AdaptPrep
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      Management fees in private equity are ________ those in hedge funds in that _________.

      • different from; fees are based on committed capital, not assets under
        management
      • similar to; fees are based on assets under management
      • different from; fees are based on assets under management, not committed
        capital
    • AdaptPrep
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      Hedge
      fund fees
      are usually calculated as a percentage of assets under management. That is, the
      total amount invested, plus/minus any returns to date.

      Private
      equity fees
      , on the other hand, are based on committed capital. In order to invest in a new fund, an investor
      might be required to commit $1M over the course of the next five years. Perhaps
      there is a schedule, $500K the first year, $300K, $150K, then $50K the last
      year. Where hedge funds would charge fees over $500K in the first year, private
      equity would use the full $1M.

    • shannondaily
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      Woo! I got it right. 

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