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Study Session 18: Alternative Investments

FCFE-based valuation with negative EBITDA?


reading 58, Practice problem #35: 
A private equity fund is estimating the value of a privately held company that
is financed with both debt and equity, is generating positive revenues, and has
negative EBITDA. The private equity fund is most likely able to estimate the
company’s equity value using:

C) expected free cash flow to equity and cost of equity.

Hedge Fund Hurdle Rate

Got a question asking for the return to investors from a hedge fund. The return net of fees was 10% and the hurdle rate was also 10%. If the return MATCHES the hurdle rate EXACTLY, does the fund get the performance fee of 20%? I had assumed yes, but the answer is telling me no (based on the math provided)

Introduction to Alternative Investments


Please share study material of new reading, if available :

Introduction to Alternative Investments, by Terri Duhon, George Spentzos, CFA, FSIP, and Scott D. Stewart, CFA

Hurdle Rate for Asset management fees

 XYZ hedge fund has a value of £10 million at the beginning of the year. The fund charges a 2% management fee based on assets under management at the end of the year and a 20% incentive fee with a soft hurdle rate of 5%. Incentive fees are calculated net of management fees. The fund’s value at the end of the year before fees is £12 million, the net return to investors is closest to:

Do I deduct the hurdle rate amount to calculate the incentive fees:

e.g: ($2M - .05*10M -.24)*.2


Should i use share or Mix of debt and equity to finance my project

I have WACC for current and Proposed calculated and if I want to calculate weather finance my project with All shares issue or use combination of Debt , Preferred shares and share. 

I have 2 billion project and proposed market share rate is $23.. My existing common shares worth 1 bill and current market price of the share is $20. 

Am I better off using shares to finance the project or mid of debts and equity

I am confuse and not sure what to do , my WACC for current is 5.00% and proposed Wacc is 6%

Thank you in Advance


Return on commodities

Hey guys,

I just did a Schweser Mock (Practice Exam Volume 1 2016, p.110) and came across the following question:

Over time, compared to traditional stock and bond investments, the commodities asset class has exhibited:

A - lower returns and lower price volatility

hedge fund fee | Management & incentive

I had a query regarding Management and incentive fee calculation in Hedge funds. There are instances where incentive fee is calculated independent of Management fee and in others net of management fee. Is there any rule or logic or will it be specified which one to use? My belief was that it should always be net of management fee otherwise Management fee gets double counted. Please help.

Hedge Fund NOF w/ hurdle calculation question

An investor allocates $10 million at the beginning of the year to a hedge fund charging a management fee of 2% and an incentive fee of 20% with a 6%(hard) hurdle rate. At year end the value of the investment is $11.8 million. The incentive fee is calculated net of the management fee and the management fee is based on the year­end value. The net­ of­ fees return the investor earned is closest to:

A.) 13.24%

B.) 13.93%

C.) 13.71%

Management Retains Control

I’m a bit confused by this statement:

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How does management retain control if shares are being transferred to the VC fund to fund the creation of the new business?

Similarly, selling control in later stages, so essentially this basically means the management is quitting the business? i.e. cashing in on their labour?