Understanding Hedge Fund Fees: Implications for Hedge Fund Managers
K&L GATES
BALANCE SHEET VS. INCOME STATEMENT
WHICH IS BETTER?
The advantage of the balance sheet approach is
that the NAV automatically "remembers" previous
redemptions and their associated Performance
Fees (if any). Each intra-Performance Fee period
redemption triggers a Performance Fee as well as
a proportionate reduction in the High Water Mark
("HWM") and a dollar-for-dollar reduction in NAV
automatically maintaining the correct relationship
between actual NAV and the HWM.
In an income statement calculation, the period-end
Performance Fee calculation needs to specifically
account for the fact that if an interim redemption
has been made, a Performance Fee was paid with
respect to the applicable portion of the cumulative
profits to the date of redemption.
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