Consider a hedge fund with $200 million at the start of the year. The benchmark S&P 500 Index was up 16.5% during the same period. The gross return on assets is 21%, and the expense ratio is 2%. For each 1% above the benchmark return, the fund managers receive a .1% incentive bonus.
What was the management cost for the year?

Question

Quizplus · Accepted Answer

$200,000,000(1.21) = $242,000,000
21% - 16.5% = 4.5%; 2% + 4.5%(.1) = 2.45%
.0245(242,000,000) = $5,929,000

Consider a Hedge Fund with $200 Million at the Start