Understanding Hedge Fund Fees: Implications for Hedge Fund Managers
K&L GATES
LONE PINE
Lone Pine Performance Fee calculations are made on a standard HWM
basis. However, in any year in which a profit is recognized, even if such
profit does not exceed the HWM, a Performance Fee is paid. But the below
HWM Performance Fee is typically at 50% of the standard Performance Fee
percentage, and any "through the end of the year" loss below the HWM
results in an increase in the HWM by 150% to 200% of the amount of such
loss.
If the HWM were increased only by the amount of the loss below the HWM,
the investor would come out mathematically the same if profits in excess of
the HWMs are achieved, but would not be compensated for the risk of
below HWM Performance Fees being paid.
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Each time there is a loss during a year - even if such loss only serves to
reverse gains below the HWM previously recognized – the Performance
Fee will be paid on any profits in the next year, even if such profits only
serve to earn back prior below the HWM losses.
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