CFA Level I · CFA Level I Exam · Hedge Funds
Compared with a fund that charges an incentive fee without a clawback provision, a fund with a clawback provision is most likely to benefit investors by:
A clawback provision lets investors recover incentive fees previously paid to the manager when subsequent losses mean the fees were not truly earned. This aligns manager and investor interests. It does not guarantee a return or waive the management fee.
- Aguaranteeing a minimum annual return
- Ballowing recovery of previously paid incentive fees after later lossesCorrect
- Celiminating the management fee in years of poor performance
Explanation
A clawback lets investors recover incentive fees paid earlier if later performance falls short, reducing the incentive to take excessive risk. It does not guarantee returns or remove management fees.
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