Equitable Performance Fee for Hedge Funds

• Main Authors: PHOON, Kok Fai, Lee, D., Lwi, S.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2004
• Subjects: hedge fund; performance fees; equalization process; Business
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/1495
• Institution: Singapore Management University

The article focuses on equitable structure for hedge fund incentive fees. The term hedge funds was first used to describe an innovative investment structure. Hedge fund managers earn money from two sources: management fees and incentive fees. Management fee is the percentage of fund's net assets under management and incentive fee is the percentage of profit that is given for positive performance. Equitable payment of incentive fees by investors can be made difficult by the way a fund is organized and the way incentive fees are charged. The article suggests a multiportfolio performance fee equalization process that is both equitable and transparent. This method allows small distortions due to adjustments to the equalization balance.