Hedge fund incentive fees are essentially

Question

Quizplus · Accepted Answer

Hedge fund incentive fees can be likened to call options on the portfolio with a strike price equal to the current portfolio value times one plus the benchmark return. This is because hedge fund managers typically earn a percentage of the profits if the fund's return exceeds a certain benchmark or hurdle rate, similar to how a call option gives the holder the right to buy an asset at a set price if the asset's value increases beyond that price.

Hedge Fund Incentive Fees Are Essentially