Asked by Bailey Hasler on Jul 22, 2024
Verified
Regarding hedge fund incentive fees, hedge fund managers ______ if the portfolio return is very large and ______ if the portfolio return is negative.
A) get nothing; get nothing
B) refund the fee; get the fee
C) get the fee; lose nothing except the incentive fee
D) get the fee; lose the management fee
E) None of the options are correct.
Incentive Fees
Fees charged by a fund manager based on the fund's performance, usually a percentage of the investment's earnings above a specified benchmark.
Portfolio Return
The overall gain or loss generated by the collection of investments held by an individual or institution, measured over a specific period.
Management Fee
A fee charged by fund managers for managing the investments within a fund, typically expressed as a percentage of assets under management.
- Achieve an understanding of the composition of hedge fund fees, with a focus on management and performance incentives.
Verified Answer
AO
Adesuwa OsagieJul 24, 2024
Final Answer :
C
Explanation :
Hedge fund managers typically earn an incentive fee based on the fund's performance. If the portfolio return is very large, they get the fee. If the portfolio return is negative, they don't earn an incentive fee but don't lose anything except the opportunity to earn that fee. They do not typically have to refund fees or lose the management fee in such scenarios.
Learning Objectives
- Achieve an understanding of the composition of hedge fund fees, with a focus on management and performance incentives.