Understanding Hedge Fund Fees: Implications for Hedge Fund Managers
K&L GATES
TAKE CARE ....
A 5% cumulative hurdle measured from the last date an Incentive Fee was paid; New
Trading Profit measured from the highest previous NAV at the end of an Incentive
Fee Calculation Period.
The Fund makes 4% each year for 10 years; then in year 11 makes 50%. While the
Fund is WAY over its cumulative hurdle rate, unfortunately we measure the
cumulative hurdle from the last time an Incentive Fee was paid, so that it equal's 55%
while the year 11 New Trading Profit is measured from the most recent high NAV. At
the beginning of Year 11, as 55>50, no Incentive Fee. THIS IS NOT JUST A
DRAFTING BUT A CONCEPTUAL MATTER.
It is common to calculate New Trading Profit from the "PREVIOUS HIGHEST YEAR-
END LEVEL OF NEW TRADING PROFIT" because without a Hurdle that would
also have been the point to which all Incentive Allocations to date would have been
"paid up" so that it made sense to start calculating New Trading Profit from $0.
However, that is by no means necessarily the case.
klgates.com
34View entire presentation