JPM is a young long/short strategy hedge fund established in 2017. It had great performance in the first two years. The investment performance results for the last two years ae as follow:

• Fund value at the start of 2019 was $300m net of fees, ending value of the fund was $350m
• In 2020, ending value was $320m

The fund charges a 2% annual management fee based on the end of year value of asset under management (AUM) and a 20% incentive fee with a hurdle rate of 3%. The hurdle rate is applied to the value of the beginning capital.

Assume that a high water mark is applied in the calculation of fees and incentive fee is charged in excess of hurdle rate and calculated net of management fee.

Calculate the total fees (management fee and incentive fee) and investors effective rate of return for the year 2019 and 2020. Suppose the high water mark as of end of 2018 was equal to $330m, also find out the latest high water mark. (17 marks)