Richard Invested $750,000 in a Hedge Fund with a 2/20

question 62

Multiple Choice

Richard invested $750,000 in a hedge fund with a 2/20 fee structure. The fund had a total of $15 million of assets under management and it returned 12% and 19% in the first and second years, respectively. Assume that management fees are paid at the beginning of each year and performance fees are paid at the end of each year in which they are applicable. How much will Richard pay in performance fees for the first two years, respectively?

• A)$15,000; $16,171
• B)$15,000; $14,640
• C)$14,640; $26,877
• D)$14,640; $134,383
• E)$73,200; $26,877

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Definitions:

Wage Concessions

Agreements where employees accept lower wages, often in exchange for job security or other benefits, typically during negotiations or economic downturns.

Mass Manufacturing

The production of large quantities of standardized products, often using assembly lines or automated technology, to achieve economies of scale.

Labor Relations

The interaction between management and labor unions or workers, encompassing negotiation, compliance with labor laws, and workplace conflict.

Business Environment

The combination of external and internal factors that influence a company's operating situation, including economic, legal, technological, and social conditions.