The following information is available about a hedge fund:
| Initial fund assets | $100 million |
| Fund assets at the end of the period (before fees) | $110 million |
| Management fee based on assets under management | 2% |
| Incentive fee based on the return | 20% |
| Soft hurdle rate | 8% |
No deposits to the fund or withdrawals from the fund occurred during the year. Management fees are calculated using end-of-period valuation. Management fees and incentive fees are calculated independently. The net-of-fees return of the investor is closest to:
The soft hurdle rate is surpassed, because the return of the fund is 10%. For that reason, the full fee, based on the full performance, is due.
Management fee: 2% of $110 million = $2.2 million.
Incentive fee: 20% of $10 million = $2 million.
Total fees: $4.2 million.
Therefore, the fund assets at the end of the period after fees are $105.8 million.
The return for the investor is 5.8%.