Dear Fabian, I am not an academic but I work on hedge funds accounting side and portfolio performance side, I look after also management and incentive fees. Your exposition is absolutely outstanding, well done.
Hi Fabian, could you make an updated video perhaps on what to do when you have a higher water-mark and a soft or hard hurdle rate in the same question? I'm able to do all your examples starting with the gain, end value and mngmt fees and then each incentive fee depending on how its asked but when you have both a watermark and hurdle im not sure how to write it out to get the answer
Hi. I have question here. I often see during my month end Nav caculation, we book the reversal posting of incentive fee charged in previous month(we reverse the previous month incentive fee and book accrual of current month incentive fee)..can you please tell me the reason behind this..
Hi Fabian -- thanks for these videos. i just wanted to ask something please. In one of the CFA exercises I noticed that the Soft Hurdle rate is compared versus the hedge fund's return (gross, i.e., without netting the management fee). Will this basically depend on the text of the exercise? I guess the reason why you've netted the return and compared it with such, is because the incentive fee is calculated net. Edit: Just another question, is the High Watermark always calculated after-fees? (despite that it's given in the last exercise)
- If incentive fee is based on gross return (i.e. independent of management fee), then compare gross return to soft hurdle rate. - If incentive fee is based on return net of management fee, then compare (gross return minus management fee) to soft hurdle rate. Even if the gross return is greater than soft hurdle rate, no incentive fee will be paid if (gross return minus management fee) is less than the soft hurdle rate. - High watermark is the market value after fees
Fabian! You are a top tier teacher. Keep going my friend
Dear Fabian, I am not an academic but I work on hedge funds accounting side and portfolio performance side, I look after also management and incentive fees.
Your exposition is absolutely outstanding, well done.
Thanks for the feedback, Luca! Appreciate it
Truly wished you explain a scenario which presents a highwater mark and a hurdle rate
Hi Fabian, could you make an updated video perhaps on what to do when you have a higher water-mark and a soft or hard hurdle rate in the same question? I'm able to do all your examples starting with the gain, end value and mngmt fees and then each incentive fee depending on how its asked but when you have both a watermark and hurdle im not sure how to write it out to get the answer
By far the best video in youtube on this topic. Thank you so much!
The timing for this video is perfect!.Thanks a lot
You're welcome, Tanisha!
Thank you for covering this topic! Much appreciated!
Thank you for explaining this practically!
You're very welcome!
Excellent explanation. Thank you
You're welcome!
Very well explained, thank you!
You're very welcome!
Thanks alot for explaining the process.
Thank you for the explanation been struggling with this
Glad it helped!
Thank you for explanation, highly appreciate it 🙏
My pleasure
Thanks 🙏
life saver. You are the best!
Thank you!
about high water mark: when should I netting the end year AUM from high water mark, and when should I only compare it to the end year AUM.
Thank you!!!
Thank you so much for this, cleared all my confusion!
No problem, Zohra!
Thank you so much my all confusion regarding this is cleared now 🙇
very well explained, thank you
Glad it was helpful!
Thanks for explanation
Hi. I have question here. I often see during my month end Nav caculation, we book the reversal posting of incentive fee charged in previous month(we reverse the previous month incentive fee and book accrual of current month incentive fee)..can you please tell me the reason behind this..
Fantastic :)!!! Thank you
Hello Fabian,
In Scenario 5, why is Management fee not deducted while computing Effective return ??
I did. I added the management fee and the incentive fee
Hi Fabian -- thanks for these videos.
i just wanted to ask something please. In one of the CFA exercises I noticed that the Soft Hurdle rate is compared versus the hedge fund's return (gross, i.e., without netting the management fee). Will this basically depend on the text of the exercise? I guess the reason why you've netted the return and compared it with such, is because the incentive fee is calculated net.
Edit: Just another question, is the High Watermark always calculated after-fees? (despite that it's given in the last exercise)
- If incentive fee is based on gross return (i.e. independent of management fee), then compare gross return to soft hurdle rate.
- If incentive fee is based on return net of management fee, then compare (gross return minus management fee) to soft hurdle rate. Even if the gross return is greater than soft hurdle rate, no incentive fee will be paid if (gross return minus management fee) is less than the soft hurdle rate.
- High watermark is the market value after fees
Hey, if you're a CFA L1 candidate still unsure of calculations. Do check this video out, helps a lot! Thank you.
amazing thanks
You're welcome!
The incentive fees in last scenario gave me a diff. no. which is 220,194,400
Maybe breakdown the steps in how you arrive at that figure.
It seem Soft hurdle rate calculation nit correct 🤦