Squaw Valley Fund of Funds (SVFOF) charges a 1% management fee and 10% incentive fee and invests an equal amount of its assets into two individual hedge funds: Pyrenees Fund (PF) and Ural Fund (UF), each charging a 2% management fee and a 20% incentive fee. For simplicity in answering the following questions, please ignore fee compounding and assume that all fees are paid at year-end.
1 If the managers of both PF and UF generate 20% gross annual returns, what is the net-of-fee return for an investor in SVFOF?
2 If PF’s manager earns a gross return of 20% but UF’s manager loses 5%, what is the net-of-fee return for an investor in SVFOF?
这道题答案有点过于简单看不懂。
Incentive fees are deducted only from gross gains net of management fees and expenses. Thus, the answer becomes:
Net of Fees Return for PF and UF Investor = (20% – 2% – 3.6%) = 14.4%, where 3.6% = 20% x (20% – 2%);
Net of Fees Return for SVFOF Investor = (14.4% – 1% – 1.34%) = 12.06%, where 1.34% = 10% x (14.4% – 1%).
Solution to 2:
Net of Fees Return for PF Investor = (20% – 2% – 3.6%) = 14.4%;
Net of Fees Return for UF Investor = (–5% – 2% – 0%) = –7.0%;
Gross Return for SVFOF Investor = (0.5 x 14.4% + 0.5 x – 7.0%) = 3.7%;
Net of Fees Return for SVFOF Investor = (3.7% – 1% – 0.27%) = 2.43%, where 0.27% = 10% x (3.7%– 1%).
alternative——Hedge Fund Strategies——Multi-Manager Strategies
