A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $1,000,000 and ended the year at 1,120,000?

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Quizplus · Accepted Answer

The gross return is 12% ($1,120,000/$1,000,000 - 1). After the 2% management fee, the return is 10%. The carry is 20% of the excess over the 8% benchmark, which is 0.4% (20% of 2%). Thus, the net IRR is 10% - 0.4% = 9.6%.

A Hedge Fund Sets Its Fee at 2% and a 20