A hedge fund charges the common 2 plus 20% fee structure, i.e. 2% management fee and 20% of any net (after management fe
Posted: Sun May 08, 2022 10:12 am
A hedge fund charges the common 2 plus 20% fee structure, i.e.
2% management fee and 20% of any net (after management fees)
profits. A pension fund invests in the hedge fund.
i. Plot the return to the pension fund as a function of the return
to the hedge fund.
ii. In addition to the usual market risk from investing, what type
of risk is faced by the pension fund manager investing in the hedge
fund? Explain with respect to the hedge fund manager’s
incentives.
word count: 100 words maximum
iii. Name and explain one feature in the hedge fund contract that
will increase the risk identified in part ii above, and one feature
that will reduce this risk.
2% management fee and 20% of any net (after management fees)
profits. A pension fund invests in the hedge fund.
i. Plot the return to the pension fund as a function of the return
to the hedge fund.
ii. In addition to the usual market risk from investing, what type
of risk is faced by the pension fund manager investing in the hedge
fund? Explain with respect to the hedge fund manager’s
incentives.
word count: 100 words maximum
iii. Name and explain one feature in the hedge fund contract that
will increase the risk identified in part ii above, and one feature
that will reduce this risk.