CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

A hedge fund has a fee structure of 2 and 20. Five LPs have agreed to provide a total of $100 million to the firm. During the first year of operation, only $30 million is called by the GP for the firm's investment needs due to lack of investment opportunities. There's no investment profit realized during the year. The management fee charged by the GP at the end of year 1 should be:
A. $0
B. $0.6 million
C. $2 million
Explanation: The management fee is based on invested capital, not committed capital (unlike a private equity fund).

User Contributed Comments 3

User Comment
PSVC Should the management fee not be based on committed capital? If it is based on the invested capital this may encourage some managers to invest in funds that would not be suitable just to increase the management fee.
Inaganti6 An utmost excellent question that I will expect on the exam.

Hedge Funds management fee is based on INVESTED CAPITAL.

PE Funds management fee is based on COMMITTED CAPITAL.

Sagarsan88 This was an eye-opener! Gotto be on toes...
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