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Class Examples and Memo

The document provides information about fee structures and calculations for different hedge funds and private equity funds. It gives the opening and ending NAV, management fee percentages, performance fee percentages, and hurdle rates to calculate management fees, performance fees, and carried interest for each fund. The correct answers are provided for multiple choice questions about the ending NAV after fees or dollar amount of carried interest based on the information given.

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46 views2 pages

Class Examples and Memo

The document provides information about fee structures and calculations for different hedge funds and private equity funds. It gives the opening and ending NAV, management fee percentages, performance fee percentages, and hurdle rates to calculate management fees, performance fees, and carried interest for each fund. The correct answers are provided for multiple choice questions about the ending NAV after fees or dollar amount of carried interest based on the information given.

Uploaded by

muna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Use the information below to answer questions 604 through 605:

Maximus Hedge Fund has a 3 and 20 fee structure without a hurdle rate. All fees are calculated based
on the NAV at the beginning of the year. The fund's NAV has increased from $200 million at the
beginning of the year to $240 million at the year end before any fees have been deducted. The fund's
high watermark is at $200 million. If the fund's high watermark had been $210 million, which of the
following comes closest to the value of the fund's end of the year NAV net of fees?
A. $226.6 million
B. $229.2 million
C. $231.4 million
D. $234 million

Opening NAV 200


End NAV 240
Management fees (200 x 0.03) (6)
Performance fees (240 – 210 – 6) x 0.20 (4.4)
NAV net of fees 229.2

Maximus Hedge Fund has a 3 and 20 fee structure without a hurdle rate. All fees are calculated based
on the NAV at the beginning of the year. The fund's NAV has increased from $200 million at the
beginning of the year to $240 million at the year-end before any fees have been deducted. The fund's
high watermark is at $200 million. Which of the following is the incentive fee earned by the fund
manager as a percentage of the hedge fund's NAV?

A. 1.0%
B. 3.0%
C. 3.4%
D. 4.0%

Opening NAV 200


End NAV 240
Management fees (200 x 0.03) (6)
Performance fees (240 – 200 – 6) x 0.20 (6.8)
NAV net of fees 227.2
As a percentage (6.8/227.2) 3%

381 A private equity fund allocated $500,000 to Project A and $500,000 to Project B in January 2009.
At the end of December 2009, Project A had generated a profit of $100,000 and Project B had
experienced a complete loss. The carried interest is 20% for the fund manager and the fund has a
hard hurdle rate of 5% annually. Which of the following is the dollar amount of the manager’s carried
interest for 2009, if profits are determined on an aggregate transaction basis?

A. $5,000
B. $10,000
C. $15,000
D. $20,000

Hurdle rate = 1 000 000 x 0.05 = 50 000


Carried interest = (100 000 – 50 000) x 0.20 = 10 000

382. A private equity fund allocated $500,000 to Project A and $500,000 to Project B in January
2009. At the end of December 2009, Project A had generated a profit of $100,000 and Project B had
experienced a complete loss. The carried interest is 20% for the fund manager and the fund has a
hard hurdle rate of 5% annually. Which of the following is the dollar amount of the manager's carried
interest for 2009, if profits are determined on an individual transaction basis?
A. $0
B. $3,000
C. $15,000
D. $20,000

Hurdle rate = 500 000 x 0.05 = 25 000


Carried interest = (100 000 – 25 000) x 0.20 = 15 000

581 A hedge fund has a 2% and 20 fee structure with no hurdle rate. The fund's net asset value
(NAV) at the start of the year is $250 million and at the end of the year, before fees, is $300 million.
Which of the following is the fund's ending NAV after fees? (use opening NAV for management fee
calculation )
A. $266 million
B. $275 million
C. $286 million
D. $295 million

Opening NAV 250


End NAV 300
Management fees (250 x 0.02) (5)
Performance fees (300 – 250 – 5) x 0.20 (9)
NAV net of fees 286

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