Information about Performance Fee
A performance fee is a fee that an investment fund may be charged by the investment manager that manages its assets, calculated by reference to the increase in the fund's net asset value (or "NAV"), which represents the value of the fund's investments. Performance fees are widely used by the investment managers of hedge funds, which typically charge a performance fee of 20% of the increase in the NAV of the fund.
If, in the worked example, there had been a hurdle of 4%, the performance fee would only have been charged on the additional 6% increase rather than the full 10% increase in NAV.
As hurdles reduce the size of performance fees and reward successful active management, they are popular with investors. However, as demand for hedge funds has been high in recent years, fewer hedge funds have needed to resort to their use to attract investors.
Where a hedge fund is structured as a limited partnership or unit trust, the terms "interest" and "unit" should be substituted for "share" .
In economics and finance, an index is a single number calculated from an array of prices or of quantities.
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Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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Worked example
An example might be as follows: An investor subscribes for share$1,080,000, giving a return of 8% before deduction of any other fees.High water marks
The highest NAV of a fund to date is known as the "high water mark". If the NAV of a fund declines during a year, no performance fee will be payable to the investment manager. If the NAV subsequently increases over the following year back to the high water mark (but no higher), it would be objectionable for the investor to be charged a performance fee on that increase because the investor has not yet made any return on its investment. Therefore, to address this concern, hedge funds will typically only charge a performance fee on increases in NAV over the high water mark.Hurdles
A hurdle, in the context of a performance fee, is a level of return that the fund must beat before it can charge a performance fee. It may be a set percentage or it may be referenced to an index. The index would typically be either LIBOR (or an equivalent) or an index reflecting the underlying market in which the fund is investing. The purpose of the latter is to reward the fund for generating returns that are better than the market (alpha) rather than for returns generated simply by movement in the market as a whole.If, in the worked example, there had been a hurdle of 4%, the performance fee would only have been charged on the additional 6% increase rather than the full 10% increase in NAV.
As hurdles reduce the size of performance fees and reward successful active management, they are popular with investors. However, as demand for hedge funds has been high in recent years, fewer hedge funds have needed to resort to their use to attract investors.
Other fees
As well as a performance fee, a hedge fund will charge a management fee, typically calculated as 2% of the NAV of the fund, regardless of whether the fund has generated any returns for the investor. Hedge funds may also pay fees to administrators, prime brokers, lawyers, accountants and other service providers.Terminology
While this article uses the term "NAV" for simplicity, in reality a performance fee would be charged by reference to the NAV per share (being the net asset value divided by the number of shares in issue). The NAV will fluctuate as investors subscribe for and redeem shares, whereas the NAV per share will only fluctuate as the underlying investments increase or decrease in value, making the latter the appropriate measure for calculating a performance fee.Where a hedge fund is structured as a limited partnership or unit trust, the terms "interest" and "unit" should be substituted for "share" .
A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.
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asset is meant probable future economic benefits controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.
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The Net Asset Value or NAV is a term used to describe the value of an entity's assets the value of its liabilities. The term is commonly used in relation to collective investment schemes. It may also be used as a synonym for the book value of a firm.
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Investment or investing[1] is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption.
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A hedge fund is an investment fund structured to avoid direct regulation and taxation in major host countries and which charges a performance fee based on the increase of the value of the fund's assets.
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An investor is any party that makes an investment.
The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company.
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The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company.
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Returns, in economics and political economy, are the distributions or payments awarded to the various suppliers of the factors of production. In classical economics the factors of production are labour, land, and capital.
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Wages
Wages are the return to labour...... Click the link for more information.
- This article is about index in an economics and finance sense. For other uses, see Index.
In economics and finance, an index is a single number calculated from an array of prices or of quantities.
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The London Interbank Offered Rate (or LIBOR, pronounced /'laɪ.bɔː/) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale
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In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices
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For other uses, see Alpha.
Alpha is a risk-adjusted measure of the so-called "excess return" on an investment. It is a common measure of assessing an active manager's performance as it is the return in excess of a benchmark index or "risk-free" investment...... Click the link for more information.
Prime Brokerage is the generic name for a bundled package of services offered by investment banks to hedge funds. The business advantage to a hedge fund of using a Prime Broker is that the Prime Broker provides a centralized securities clearing facility for the hedge fund, and the
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For the fish called "lawyer", see .
A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person licensed to practice law...... Click the link for more information.
Accountant, or Qualified Accountant, or Professional Accountant, is a certified accountancy and financial expert in the jurisdiction of many countries. Such as other legally-restricted professions including medical doctors and lawyers, different countries have their
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Business law
Business organizations
Basic forms:
Sole proprietorship
Corporation
Partnership
(General · Limited · LLP)
Cooperative
USA:
Business trust · LLC · LLLP
Delaware corporation
Nevada corporation
UK/Commonwealth:
Limited company
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Business organizations
Basic forms:
Sole proprietorship
Corporation
Partnership
(General · Limited · LLP)
Cooperative
USA:
Business trust · LLC · LLLP
Delaware corporation
Nevada corporation
UK/Commonwealth:
Limited company
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For UIT, a U.S. fund type, see .
A unit trust is a form of collective investment constituted under a trust deed.Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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