A hedge fund established a high water mark of $200 million two years ago. The end-of-year value before fees for last year was $180 million. This year’s end-of-year value before fees is $210 million. The fund has a ‘2 and 20’ fee structure. Management fees are paid independently of incentive fees and are calculated on end-of-year values. Calculate the total fees of the fund for the current year.
Management fee = 2% of $210 million = $4.2 million
Incentive fee = 20% of ($210 million – $200 million) = $2 million.
Total fees = $4.2 + $2 = $6.2 million