Understanding Hedge Fund Fees: Implications for Hedge Fund Managers

TAKE FURTHER CURE .... Assume a year-to-year hurdle with the loss carryforward account measured from the last time an incentive fee was paid. Assume the hurdle is 5% and the Fund makes 4% for 4 years; simplifying the math, the Fund is at 116 and has never paid an incentive fee. If in year 5 the Fund makes 4.99% and then loses 20.99% in year 6, there is NO LOSS CARRYFORWARD BALANCE; However, if in year 5 the Fund makes 5.00001 % and then loses 21.00001 % in year 6 there is a 21.00001 % Loss Carryforward Balance. Just because a $0.01 Incentive Fee is paid at an Incentive Fee Calculation Period-end, BY NO MEANS means that the FULL Incentive Fee that would then have been due on an HWM basis is then paid. klgates.com K&L GATES 35

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