Explanation:
Let the gross return earned by the hedge fund be R. The management fee is 1%. The remaining return before the incentive fee is (R - 1%). The incentive fee is 25% of this remaining return. Thus, the net return to the investor is: Net Return = (R - 1%) * (1 - 0.25) = (R - 1%) * 0.75 We are given that the required net return is 18%. 0.75 * (R - 1%) = 18% R - 1% = 18% / 0.75 = 24% R = 24% + 1% = 25.00%.
Ultimate access to all questions.
Q.88 An investor in a hedge fund requires a net return after fees of 18%. If the hedge fund charges fees of 1 plus 25%, how much will the hedge fund have to earn for the investor to get his desired return? Assume that the incentive fee is applied after the management fee has been subtracted
A
22.30%
B
25.00%
C
25.70%
D
24.00%
No comments yet.