3.38.1 Compute Performance Fee for Hedge Funds

This topic provides information on computing performance fee for hedge funds details.

Hedge fund managers charge the investors a fee called performance fee, which is a percentage of the gains received by the investor. As investors enter and exit hedge funds at different points in time, the performance gains received by them also differ accordingly.

Hence, the performance fee calculations are carried out using a special accounting methodology called equalization accounting which ensures that the fund manager is paid the correct performance fee and also that the fees are fairly allocated between each investor in the fund. The investors also receive profit only for the period during which they stay invested in the fund.

The following performance fee calculation methods are supported for hedge funds:

• EC / CL (Equalization Credit / Contingent Redemption)
• FR (Forced Redemption)
• EC/ED (Equalization Credit / Equalization Debit): also known as Equalization Redemption.

Note:

Variations to the above listed methods are also possible by setting up new rules and rule groups in the system.

The different performance fee calculation methods are briefly explained below:

• Contingent Liquidation
  This topic provides information on contingent liquidation.
• Equalization Credit
  This topic provides information on equalization credit.
• Forced Redemption
  This topic provides information on forced redemption.