Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Excelsior Management Co., a prominent hedge fund manager pursuing an event-driven strategy, charges a management fee of 1.5% per annum and an incentive fee of

Excelsior Management Co., a prominent hedge fund manager pursuing an event-driven strategy, charges a management fee of 1.5% per annum and an incentive fee of 15% on any "net new profits" (i.e., above the previous high water mark) earned by its fund after deducting this management fee. All fees are charged and collected at the end of each year. Over the past three years, the Fund generated the following gross returns (i.e., prior to any fees being charged):

Year 1 +20%

Year 2 -10%

Year 3 +5%

By how much must the Fund appreciate in Year 4 in order to hit its high water mark, which would allow the manager to begin to charge the incentive fee once again?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International financial management

Authors: Jeff Madura

12th edition

1133947832, 978-1305195011, 978-1133947837

More Books

Students also viewed these Finance questions