Explanation:
Fund value at year-end = $10 million × 1.15 = $11.5 million
Management fees = $11.5 million × 0.02 = $0.23 million
Hurdle amount = $10 million × 0.005 = $0.05 million
Incentive fees = ($11.5 million - $10 million - $0.05 million) × 0.20 = $0.29 million
Total fees paid to Clock Limited = $0.23 million + $0.29 million = $0.52 million
Investor's net return = ($11.5 million - $10 million - $0.52 million)/$10 million = 9.8%
Q.3505 Clock Limited is a hedge fund with a total asset base of $10 million. The fund charges a 2% management fee based on assets under management at year-end and a 20% incentive fee in excess of a 0.5% hurdle rate. During the first year, the fund appreciates by 15%. If incentive fees are calculated independently and management fees are calculated at year-end, what is the investor's return net of performance fees?
A
0.068
B
0.081
C
0.098
D
0.0852
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