The hedge funds AUM is $200 million. The fund has a typical two and twenty fee structure. The funds benchmark, Barclays Hedge Fund Index, showed a return of 15.5% for 2021, while the hedge fund itself was able to generate a return of 29.5% during the same period. How much fees does an investor in this hedge fund pay for the year 2021? a) 2.00% b) 2.20% c) 4.80% d) 7.90%

TWO AND TWENTY = 2% of AUM and 20% of profits

1)Calculate the management fee = 2% of AUM = 2% x 200 million = 4 million

2)Calculate performance fee = 20% of profits, profits = hedge fund return benchmark return = 29.5% - 15.5% = 14%

3)Calculate total fee paid = management fee + performance fee ?