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 $4,000,000 and ended the year at 5,300,000?

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The gross return is ($5,300,000 - $4,000,000) / $4,000,000 = 32.5%. After the 2% management fee, the return is 30.5%. The carry is 20% of the excess over the 8% benchmark, which is 20% of (30.5% - 8%) = 4.5%. Thus, the net return is 30.5% - 4.5% = 26%. The Net IRR to investors is 24.95% after accounting for the management fee and carry.

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