- CFA Exams
- CFA Level I Exam
- Topic 8. Alternative Investments
- Learning Module 47. Introduction to Alternative Investments
- Subject 3. Investment and Compensation Structures
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 the total fees charged by the fund manager?
A. 5.25%
B. 5.75%
C. 6.25%
Explanation: The gross returns must adjust for the 20% share of gross returns that accrue to the hedge fund manager, and then add back the 2% management fee. Gross returns are therefore 15% / (100% - 20%) + 2% = 20.75%. Total fees to the hedge fund manager are therefore 20.75% - 15.00% = 5.75%.
User Contributed Comments 8
| User | Comment |
|---|---|
| ldfrench | Well isn't this question just a kick in the nuts. |
| leon121 | good question |
| ebola | PF is paid post MF. Net MF is 18.75%. Net PF is 15%. |
| qq6164515 | why gross rate not equal to (15%+2%)/(100%-20%)? |
| Emanco | Plug in the numbers: 5,75%+ 15%= 20.75% 20.75% -2%= 18.75% 18.75% * 0.2= 3.75% 3.75% + 2% = 5.75% |
| AggelosAnd | LOS 60 d.e.f/ Quiz question 24 exactly same assumptions. Gross returns = 21.25% Gross returns here = 20.75% How and why? |
| Akiva | AggelosAnd and qq6164515, +1 I cannot understand, why here is 15% / (100% - 20%) + 2% Why not (15% + 2%) / (100% - 20%) (the same is in the question 24 LOS 60 d.e.f., as AggelosAnd mentioned |
| sevywonder | so the 15% already includes the portion taken out for performance- to add it back in, you need to multiply by 1/.8=1.25. ergo .15*1.25= .1875 and the 2% is taken out regardless, so .02+.1875= .2075 .2075 minus the .15 return equals .0575 taken out in fees |