A $980m hedge fund charges fees of 1.5-20 and has 0.22% in other annual expenses.  LPs provide $945m of the initial capital with the GP providing the rest.  The GP takes the management fees out of the Fund and leaves their incentive fees in the Fund.  The Fund earns gross returns of 10.2%, -3.4%, and 11.5% over first three years, respectively.  The cost of any leverage is 4.9% annually.  There are no LP additions to or redemptions from the Fund.  Calculate the Fund's net returns for the three years under five different scenarios:

1. No leverage, no hurdle
2. Begin each year with $900m in leverage, no hurdle
3. No leverage, 5% hurdle with no catch-up
4. Begin each year with $900m in leverage, 5% hurdle with no catch-up
5. No leverage, 5% hurdle with catch-up

Answer rating: 100% (QA)

To calculate the Funds net returns for the three years under the five different scenarios we need to follow these steps 1 Calculate the total fees and ... View the full answer