EXHIBIT 5: HEDGE FUND HURDLE RATE EXAMPLE (IN use; MILLIONS) _ - Hurdle Rate FIM US Fund Performance W Performance 5% Fee $525 $450 .- $550 $555 Note: AUM = assets under management; FIM US 2 Feehan Investment Management longishort strategy; A hurdle rate establishes a minimum retum {e.g., the federal funds rate plus 200 basis points} that the fund must exceed before the performance fee is earned. This rate is usually a benchmark interest rate such as the rate for 5 or 10ryear US. Treasury bills. The underlying concept is that an investor could earn this rate with relatively low risk, and the hurdle rate represents the opportunity cost of investing that money elsewhere. The hurdle rate above is calculated as 5 per cent of the initial investment ($500 million) per year, with no compounding. Given that the fund did not outperform 5 per cent in year one, its performance fee would be $0. Source: Created by the authors