Alternative Inv READING 79 Performance Appraisal and Return Calculations Exam Questions With Well Elaborated Answers.
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Course
INV.
Institution
INV.
Total Fees - correct answer
Which waterfall structure is better for LP - correct answer European
PERF FEE = CARRIED INT = INCENTIVE FEE - correct answer
...
-> after fees rate of return - correct answer V1 - V0 - Total Fees / V0
In PE u pay fees on - correct answer comitted capital
5% soft hurdle rate, and uses a high-water mark.
2) V1 = 119M
V1 Net of mgmt Fee = 117
6.4% return 5% SOFT HURDLE RATE
HWM = 110M / Perf fee = 20%
3) if 5% HARD HURDLE RATE - correct answer We compute the return net of
mgmt fees. ( V1 / V0 - 1 ).
-It is les than the soft hurdle rate -> we dont compute perf fees
2) Higher than the 5% soft hurdle rate -> Performance fees of 20% on 7M
, 3) we charge fees only on gains more than 5% above the high water mark -> More than 1.05 * 110 =
115.5
How to determine the HWM - correct answer Until there is fees the High
Water Mark ( HWM ) is the highest reported value of the fund precedently recorded
If there is perf fees they are computed on the amount above the HWM and if the value after perf and
mgt fees is higher than the highest NAV reported, this is the new HWM
2) European-style waterfall structure - correct answer If there is 2 deals
1) We compute fees separately on each deal -> calculate perf fees on each deal
2) We compute fees on both inv
Example of clawback provision
2inv with a clawback provision / 20% perf fee
1. 130 M return - 100M invested -> 30 M gain
2. 80 M return - 100 M invested -> 20 M perte - correct answer 1. Perf fee =
6M soit 20%*30M we OK til the 2nd inv
2.After the second inv the total return is 30 - 20 = 10M
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