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**CFA Practice Question**

Assume that a hedge fund returns 15% in a year

B. 20.4%.

C. 21.25%.

*net of all fees*. Its fee structure is 2 and 20. What are its gross returns?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.

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**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 |