Hi mam, thank you so much for such a detailed explanation... I would like to request for some clarification in all the 3 scenarios when there is a loss, how are hurdle rate, hurdle rate + hwm calculated in these scenarios (please explain for 2 consecutive years for each scenario where 1st year is loss and 2nd year is profit for benchmark) and other relevant scenarios... can you please tell a book that I can practice to get more comfortable with practical questions on this topic... Looking forward to your reply.
@Sushila. I also have another question. If a hedge fund has 100Billion in AUM and prefers to invest only one great business but the total market cap of the business itself is just 5 billion, what will they do? Do they have to diversify and compromise their returns? Is that why big hedge funds are slow compared to young managers?
@harikrishnan To invest completely in a fund and have a control over the management is something that Private equities do. Hedge funds invests and owns the securities of different companies in small fractions only. In practicality, there will be investment restrictions on hedge funds which are agreed in prospectus/Memorandum. Example: Fund cannot invest more than 10% of NAV in single group of company, Cannot invest more than 10% of NAV in BBB rated bonds etc.
@sushila Hello ma'am I have a doubt. In scenario 1 I think 10mn management fees should also be deducted from profit of 200mn.and incentive fees should have been calculated on 190mn. Please clarify
Hi Mamta! I wanted to show both scenarios, in real world accounting, management fees are first deducted and incentive fees are paid after that! Thank you for your insight!! Best Wishes!
Thank you for the video Question : Is the initial AUM explained in the video I.e 500 $ ml ,is the portion of committed capital or total commitment by the LP? Or is the whole amount committed is the AUM ?
Management fee is not calculated on fund profit.As you said it is calculated on fund AUM.So i think we no need to deduct that 10mn on profit while deducting hurdle amount 35 mn
@Sushila. What if there a small bubble in the stock and then the business never reaches that previous watermark ever again. Then the hedge fund could kiss good bye to performance fee forever? Can HWM be set as 10% increments from previous 10%, as this could avoid unrealistic HWM in volatile markets?
If the fund does not reaches the HWM then the manager would not be entitled to performance fees, till it crosses the HWM no matter when it crosses then only he will be entitled to performance fees. Till the time the HWM will be considered as the benchmark it needs to be crossed.
@@sushilahariharanin the scenario one on performance fee why management fee was not deducted before calculating the performance fee . In there a specific reason?
Thanks a lot for this video Mam but in case of master feeder structure where will we calculate incentive fee, in feeder or master fund And also where will we cal mgmt fee and admin fee, in feeder or master
@@sushilahariharan Yes mam, tomorrow is my Interview for Hedge fund accounting process, and i am preparing for that, by watching all your video twice - thrice, thank you for this wonderful videos
Hi , can u plz explain HWM - as per your scenario 500mn investment , at the end of the year if the amount becomes less than investment amount means ( for ex :- 450mn) then which amount will be the HWM for the next year 450 or 500. My next question is there any scenario available in hedge fund like fund having both HWM and hurdle rate for the same fund .
First reply to your second question - yes we will be having both hurdle rate and HWM. 1st question - if the amt becomes 450 mn then only manager will be entitled for commission of 2% till it crosses 500 mn then it will make a new high and that will be termed as HWM unless no HWM below 500 and till it regains 500 levels and make HWM above 500.
