- CFA Exams
- CFA Level I Exam
- Topic 8. Alternative Investments
- Learning Module 2. Alternative Investment Performance and Returns
- Subject 2. Calculating Fees and Returns
CFA Practice Question
Assume that a hedge fund returns 15% in a year net of all fees. Its fee structure is 2 and 20. What are its gross returns?
B. 20.4%.
C. 21.25%.
A. 20%.
B. 20.4%.
C. 21.25%.
Correct Answer: C
The gross returns must add back the 2% management fee and adjust for the 20% share of gross returns that accrue to the hedge fund manager. Gross returns are therefore (15% + 2%) / (100% - 20%) = 21.25%.
Thus of the gross returns generated by the hedge fund manager, some 30% of the returns are retained as fees and 70% paid to the investor.
User Contributed Comments 5
| User | Comment |
|---|---|
| something | (1+x) - 0.02(1+x) - 0.2x = 1.15, should give x = 21.79%, assuming management fee and incentive fees are independent. |
| Salim6 | Assume X is the original value. Gross return = Net return + Fees/X = 0.15 + 0.02*1,15 + 0.2 * 0.15 = 0.15 + 0.053 = 20.3 % What's wrong with it pls ? |
| nsbwong | something, tht is exactly what i got as well... |
| chiodom1 | Look at it like this Gross Return = Net Return + Mgt Fee + Incentive Fee X = 15 + 2 + .2X .8X = 17 X= 21.25 |
| 3788wuz | Salim6: fee is calculated based on gross return |