Understanding Hedge Fund Fees: Implications for Hedge Fund Managers
K&L GATES
LONE, PINE SAMPLE DISCLOSURE
For example, assume a Limited Partner initially contributes $10,000,000 to its
Capital Account and the Capital Account declines to $9,000,000 at the end of
Year One. At the end of Year One, the High-Water Mark will be increased by
250% of the Net Loss to $11,500,000. If in Year Two, the Capital Account
recovers to regain its initial: $10,000,000 NAV, a Performance Fee Allocation of
$100,000 will be made at the end of Year Two, and the High-Water Mark will be
reduced by the amount of the allocation made to the General Partner to $1
1,400,000. If in Year Three, the NAV of the Capital Account increases to
$13,000,000, the Limited Partner would have made, on a conventional
20%/High-Water Mark calculation, a Performance Fee Allocation of $600,000 at
the end of Year Three. In the case of the Fund, the Limited Partner will have
made a Performance Fee Allocation of $100,000 for Year Two, plus a
Performance Fee Allocation for Year Three equal to $150,000 (10% of
$11,400,000 minus $9,900,000) plus $320,000 (20% of $13,000,000 minus
$11,400,000), for a total of $570,000.
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