@@sushilahariharanin the scenario one on performance fee why management fee was not deducted before calculating the performance fee . In there a specific reason?
@@sushilahariharan Yes mam, tomorrow is my Interview for Hedge fund accounting process, and i am preparing for that, by watching all your video twice - thrice, thank you for this wonderful videos
@Sushila. What if there a small bubble in the stock and then the business never reaches that previous watermark ever again. Then the hedge fund could kiss good bye to performance fee forever? Can HWM be set as 10% increments from previous 10%, as this could avoid unrealistic HWM in volatile markets?
If the fund does not reaches the HWM then the manager would not be entitled to performance fees, till it crosses the HWM no matter when it crosses then only he will be entitled to performance fees. Till the time the HWM will be considered as the benchmark it needs to be crossed.
@sushila Hello ma'am I have a doubt. In scenario 1 I think 10mn management fees should also be deducted from profit of 200mn.and incentive fees should have been calculated on 190mn. Please clarify
Hi Mamta! I wanted to show both scenarios, in real world accounting, management fees are first deducted and incentive fees are paid after that! Thank you for your insight!! Best Wishes!
Thank you for the video Question : Is the initial AUM explained in the video I.e 500 $ ml ,is the portion of committed capital or total commitment by the LP? Or is the whole amount committed is the AUM ?
@Sushila. I also have another question. If a hedge fund has 100Billion in AUM and prefers to invest only one great business but the total market cap of the business itself is just 5 billion, what will they do? Do they have to diversify and compromise their returns? Is that why big hedge funds are slow compared to young managers?
@harikrishnan To invest completely in a fund and have a control over the management is something that Private equities do. Hedge funds invests and owns the securities of different companies in small fractions only. In practicality, there will be investment restrictions on hedge funds which are agreed in prospectus/Memorandum. Example: Fund cannot invest more than 10% of NAV in single group of company, Cannot invest more than 10% of NAV in BBB rated bonds etc.
Hi mam, thank you so much for such a detailed explanation... I would like to request for some clarification in all the 3 scenarios when there is a loss, how are hurdle rate, hurdle rate + hwm calculated in these scenarios (please explain for 2 consecutive years for each scenario where 1st year is loss and 2nd year is profit for benchmark) and other relevant scenarios... can you please tell a book that I can practice to get more comfortable with practical questions on this topic... Looking forward to your reply.
Management fee is not calculated on fund profit.As you said it is calculated on fund AUM.So i think we no need to deduct that 10mn on profit while deducting hurdle amount 35 mn
Hi , can u plz explain HWM - as per your scenario 500mn investment , at the end of the year if the amount becomes less than investment amount means ( for ex :- 450mn) then which amount will be the HWM for the next year 450 or 500. My next question is there any scenario available in hedge fund like fund having both HWM and hurdle rate for the same fund .
First reply to your second question - yes we will be having both hurdle rate and HWM. 1st question - if the amt becomes 450 mn then only manager will be entitled for commission of 2% till it crosses 500 mn then it will make a new high and that will be termed as HWM unless no HWM below 500 and till it regains 500 levels and make HWM above 500.
Thanks a lot for this video Mam but in case of master feeder structure where will we calculate incentive fee, in feeder or master fund And also where will we cal mgmt fee and admin fee, in feeder or master
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Very important and informative
Great video. Everything explained in simple terms. Thanks Hari!
Wow very simply explained understood able👍👍👍
Thanks a ton chief for your support
Thank you for simplifying this. Please Keep on making such videos, this channel is very informative.
Thank you for your support and motivation ☺️
Very well explained mam🙏
Thank you for your kind words
Helpful 👍👍👍👍
Glad to hear that! Thank you!
Best explanation 👏..it will be very helpful ☺️
Thanks a lot 😊
@@sushilahariharanin the scenario one on performance fee why management fee was not deducted before calculating the performance fee . In there a specific reason?
Good Explained mam
Thanks for your kind words Chandrashekar
Glad you found the content useful
Fabulous mam👍👏👏
Thank you Ankit. Glad you found the content useful
@@sushilahariharan Yes mam, tomorrow is my Interview for Hedge fund accounting process, and i am preparing for that, by watching all your video twice - thrice, thank you for this wonderful videos
@@ankitgupta5554 God Bless you.. Best wishes for your interview
Useful and very well put together, thank you!
Glad it was helpful!
Very well explained 👏 👌 Thank you for the efforts.
Thank you. Glad you found the content useful
Hi mam what is the difference between carried interest and performance fee
very well explained
Thank you Ji
Cool
Thanks mam
@Sushila. What if there a small bubble in the stock and then the business never reaches that previous watermark ever again. Then the hedge fund could kiss good bye to performance fee forever?
Can HWM be set as 10% increments from previous 10%, as this could avoid unrealistic HWM in volatile markets?
Upto my knowledge, if the fund dosent acheive the previous level HWM in upcoming years then fund manager need to say good bye to performance fee
If the fund does not reaches the HWM then the manager would not be entitled to performance fees, till it crosses the HWM no matter when it crosses then only he will be entitled to performance fees. Till the time the HWM will be considered as the benchmark it needs to be crossed.
You are correct 💯
That explanation is correct
That is right Harikrishna
Hi, Thank you for this great explanation! Just a quick question: the new high water mark will now be 800Mn after Y4 right?
@sushila
Hello ma'am
I have a doubt.
In scenario 1 I think 10mn management fees should also be deducted from profit of 200mn.and incentive fees should have been calculated on 190mn.
Please clarify
Hi Mamta! I wanted to show both scenarios, in real world accounting, management fees are first deducted and incentive fees are paid after that! Thank you for your insight!! Best Wishes!
@@sushilahariharan 100% Agreed with you on this. I am not sure how i missed such knowledgeable channel.
Thank you
Glad you found it helpful
Thank you for the video
Question :
Is the initial AUM explained in the video I.e 500 $ ml ,is the portion of committed capital or total commitment by the LP?
Or is the whole amount committed is the AUM ?
Thank you for your kind words
For simplicity sake
@Sushila. I also have another question. If a hedge fund has 100Billion in AUM and prefers to invest only one great business but the total market cap of the business itself is just 5 billion, what will they do? Do they have to diversify and compromise their returns? Is that why big hedge funds are slow compared to young managers?
Thank you for your question ⁉️
Hedge funds willnot put allthe investible capital in a single company or asset
@harikrishnan To invest completely in a fund and have a control over the management is something that Private equities do. Hedge funds invests and owns the securities of different companies in small fractions only. In practicality, there will be investment restrictions on hedge funds which are agreed in prospectus/Memorandum. Example: Fund cannot invest more than 10% of NAV in single group of company, Cannot invest more than 10% of NAV in BBB rated bonds etc.
Hi mam, thank you so much for such a detailed explanation... I would like to request for some clarification in all the 3 scenarios when there is a loss, how are hurdle rate, hurdle rate + hwm calculated in these scenarios (please explain for 2 consecutive years for each scenario where 1st year is loss and 2nd year is profit for benchmark) and other relevant scenarios... can you please tell a book that I can practice to get more comfortable with practical questions on this topic... Looking forward to your reply.
Ma'am, what is loss carry forward and crystallization?
Soon uploading a video on HWM and crystallization of fees
Hello, any live classes for fund accounting.
Will be more helpful to get understanding
Thank you Punitha. Yes, soon.
Thank you, will be great helpful
Ma'am, can you please make video on what is crystallization and how is it calculated?
Thank you for your suggestion. Will do
Hi ma'am could you please make video on crystallization in fund
Thats a great suggestion.. Will do!!Thanks
Ma'am, please make a video how to calculate HWM, including loss carry forward, impact of crystallization and all related concepts associated with it
Thank you Anshuman for the great suggestion. Will do
@@sushilahariharan Ma'am, can you please tell whether are you providing any paid sessions regarding preparation of fund accounting interview ?
@@ansumanmishra21 No Anshuman. Not providing such sessions. Only sharing my knowledge Freely on youtube
Management fee is not calculated on fund profit.As you said it is calculated on fund AUM.So i think we no need to deduct that 10mn on profit while deducting hurdle amount 35 mn
Hi mam
How to fix the Hurdle rate for
particular fund like 5% and 6%
And who will fix the hurdle rate?
Setting of hurdle rate is a calculated rate and is finalised between LP and GP
Hi , can u plz explain HWM - as per your scenario 500mn investment , at the end of the year if the amount becomes less than investment amount means ( for ex :- 450mn) then which amount will be the HWM for the next year 450 or 500.
My next question is there any scenario available in hedge fund like fund having both HWM and hurdle rate for the same fund .
First reply to your second question - yes we will be having both hurdle rate and HWM.
1st question - if the amt becomes 450 mn then only manager will be entitled for commission of 2% till it crosses 500 mn then it will make a new high and that will be termed as HWM unless no HWM below 500 and till it regains 500 levels and make HWM above 500.
That's correct 😊
In the first senario why did not you substracted mangement fee while calcuting performance fee so 200-10= 190 and 190×20%= 38 rs please confirm??
Thanks a lot for this video
Mam but in case of master feeder structure where will we calculate incentive fee, in feeder or master fund
And also where will we cal mgmt fee and admin fee, in feeder or master
Great question Prabhakar!! All fees will be paid at Feeder fund level by investors.
Thank you mam
Hi Ma'am, if possible please make video for journal entries like Mgmt fee, income and trade and how this entry impact in P&L statement
Great suggestion.. will do Karthik
Hi mam,In scenario 1 u haven't deducted management fee while calculating incentive fee
I wanted to show both scenarios. In real world hedge funds, incentive fees are paid after deducting management fees. Hope that helps!!
I think we have substract mgnt. fees from gross profit before calculating Incentive fees.
So, Gross Profit = 700- 500= $200
Mgnt. fees= 10
Incentive Fees= (200-10)*20% = 38
Total Fees= 10+38 = $48
Please confirm, :)
Hello Mam, Can You please describe the definition of High Water Mark & Hurdle Rate in comment box, because It will help us point of interview.
Sure. Will do that 😊