Understanding Hedge Fund Fees: Implications for Hedge Fund Managers
K&L GATES
BALANCE SHEET VS. INCOME STATEMENT
PERFORMANCE FEE CALCULATIONS
There are two different methods of calculating Performance Fees:
1. income statement (cumulative trading profit); and
2. balance sheet (highest NAV).
The latter is preferable in all circumstances in which increases in the NAV of
an investment determine the Performance Fee due, including in the case of
calculations involving hurdle amounts.
The former is preferable in any situation in which the increase in NAV does
not determine the Performance Fee - for example, in futures funds in which
interest income is often excluded in calculating the Performance Fee
(although remaining a component of NAV) - or in funds in which the
Performance Fee is determined by performance relative to an index rather
than solely on the basis of NAV increases. Income statement calculations
are also preferable when notional equity is used because reductions in
notional equity do not correlate to reductions in NAV, so that a balance
sheet approach is unable to account successfully for such reductions.
klgates.com
13View entire presentation