Understanding Hedge Fund Fees: Implications for Hedge Fund Managers
K&L GATES
GETTING OVER THE HURDLE ....
How fees should be calculated is primarily a business question.
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What performance is appropriately subject to a Performance Fee?
Is it performance as calculated only during the current Performance Fee period; is it
cumulative performance?
If cumulative, does the calculation begin at the inception of the Fund, an investor's
initial admission into the Fund, or as of each new investment by the same investor? If
cumulative year over year, keep the hurdle rate base separate from HWM, otherwise
performance below hurdle still can entitle manager performance comp. in later years
if hurdle is cleared on cumulative basis.
Is performance measured relative to a benchmark (even if the benchmark declines)?
Does performance only "count" towards the Performance Fee calculation if it is over a
"high water mark"?
Does performance only count if it is over a hurdle amount, and, if so, should the
hurdle amount itself be a "soft" or "hard" hurdle?
Should hurdles be calculated separately with respect to each year or cumulatively
over the course of an investment? etc.
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