Understanding Hedge Fund Fees: Implications for Hedge Fund Managers

K&L GATES The horror....of using hurdle rates https://www.youtube.com/watch?v=VKCAYMb5uk4 Increasing number of managers integrating hurdles in performance comp structure. Minimum rate of return that must be met before manager can earn performance comp. Hurdles can be ■ fixed percentages Index-based percentages Alpha rates (i.e., not market beta) The Red Queen's Hurdle Rate (based on 7% CPI implied investment cash rate of 7% real rates. See https://seekingalpha.com/article/4413679-red- queens-hurdle-rate) Minor nuances in hurdle structures can lead to very different results Source: Jon Tenniel from Lewis Carroll's Through the Looking-Glass klgates.com 31

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