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CFA Level I · CFA Level I Exam · Alternative Investment Features, Methods, and Structures

A fund has a committed capital of $200 million, a 2% management fee charged on committed capital, and a hurdle rate of 8% with a 20% carried interest and no catch-up. After one year, the fund's invested assets earned $30 million before fees on $200 million invested, and fees are paid from those profits. The management fee paid in the year, in $ million, is closest to:

The management fee is 2% of committed capital of $200 million, which equals about $4 million. The fee is charged on the committed amount regardless of the profit earned or the hurdle rate, so the $30 million profit and the carried interest do not affect it.

  1. A4Correct
  2. B6
  3. C30

Explanation

The fee is based on committed capital: 2% × $200 million = $4 million. Using the $30 million profit (option C) uses the wrong base, and 6 mixes in a 20% carry on a partial figure rather than the fee rate. Hurdle and carry do not change the fee.

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