Asked Mar 11, 2020

A hedge fund with $1 billion of assets charges a management fee of 2% and an incentive fee of 20% of returns over a money market rate, which currently is 5%. Calculate total fees, both in dollars and as a percent of assets under management, for portfolio returns of:
a. −5%
b. 0
c. 5%
d. 10%


Expert Answer

Step 1

Given information in question

Fund value                  =          $1

Management fee         =          2%

Incentive fee               =          20% if return over 5%

Step 2

Part A

Since in this situation we did not earn return, hence no incentive only management fee 2% of $1 billion

Step 3

Part B

Since in this situation we did not earn return, hence...

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