Question

At the start of the year, the value of assets managed by Bank Hedge Fund was $180 million. Over the year, the fund earned a gross return of 15% compared with the market index return of 10%. The fund manager charges a management fee of 2% of the asset value at commencement, and a performance fee of 20% above the market benchmark. Calculate the following information:

The management fee is $__________ million.
Excess dollar return above the market is $__________ million.
Performance fee is $__________ million.
Total fees earned by the manager over the year are $__________ million.

Answer 1

The management fee is $180 million x 2% = $3.6 million.

Excess dollar return above the market is ($180 million x 15%) - ($180 million x 10%) = $9 million.

Performance fee is $9 million x 20% = $1.8 million.

Total fees earned by the manager over the year are $3.6 million + $1.8 million = $5.4 million.