Fifth year for the fund to return to its high-water mark

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Back to no hurdle. A $200m hedge fund charges fees of 1.5-20 (and has 0.4% in other annual expenses), and launches with $190m in LP capital. The GP takes the management fees out of the Fund and leaves the incentive fees in the fund, and the fund earns gross returns of 12.1%, 14.3%, and 5.4% over the next three years, respectively.

a. Assume that the fund takes in an additional $400m at t=3 (and nothing before that), and then has a -10% gross return in the fourth year.

b. What are total LP profits over four years?

c. What are the total management and incentive fees collected by the GP?

d. What gross return would be necessary in the fifth year for the Fund to return to its high-water mark?

Reference no: EM132237761

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