Question 1. For all types of alternative investments (hedge funds, private equity, real estate, commodities and infrastructure), discuss its 1) correlation of returns with traditional investments; 2) liquidity; and 3) benefits and risk for investors. Tables are preferred. If not, use of bullet points are strongly recommended.
Question 2. Kitty Cat Partners, a fund of hedge funds, has the following fee structure:
o 2/20 underlying fund fees with incentive fees calculated independently
o Kitty Cat fees are calculated net of all underlying fund fees
o 1% management fee (based on year- end market value)
o 10% incentive fee calculated net of management fee
o The fund and all underlying funds have no hurdle rate or high- water mark fee conditions
In the latest year, Kitty Cat’s fund value increased from $100 million to $133 million before deduction of management and incentive fees of the fund or underlying funds. Based on the information provided, what is the total fee earned by all funds in the aggregate?
Question 3. ARK Queen is a hedge fund with $250 million of initial capital. ARK charges a 2% management fee based on assets under management at year end, and a 20% incentive fee based on returns in excess of an 8% hurdle rate. In its first year, ARK appreciates 16%. Assume management fees are calculated using end-of-period valuation. What is investor’s net return assuming the performance fee is calculated net of the management fee?
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