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Study Session 15: Alternative Investments

What is management fees calculated upon?


There is a lot of confusion over the question:

What is management fees calculated upon?

Paid in capital, committed capital or beginning of year NAV?


Carried Interest


Got confused on Carried Interest

CI = (NAVbefore dist - Committed Capital) * 20%  ;or

CI = (NAVbefore dist - NAVbefore dist of previous year) * 20%

Which one is correct

Hurdle Rates - Carried Interest

Is the hurdle rate a factor in all carried interest methods (deal-by-deal and the two total return methods). Kaplan and the CFAI curriculum do not seem to do a good job explaining. Based off my reading it seems the hurdle rate only comes into play with the deal-by-deal method, but I am hoping someone can confirm for me.

REIT Valuation

In REIT valuation, while calculating the NAVPS, we do certain adjustments to current yeat NOI like deducting non cash rent. However, why do we take the impact of full year acquisition? In this way, are we not overstating this year’s NOI?

Carried interest


I`m on the mock exam 2019 morning session, question 46 (Yushah Capital Partners Case Scenario).

Can anybody help me with the following please: The carried interest (what the GP gets) is a % from (NAV before distributions - Committed capital). Ok, but can you help me how the carried interest for year 2013 and 2014 is calculated pls?

Commodities and Interest Rates

A hedge fund manager said the following:: “Interest rates and LIBOR rates are raising. This should drive down ISM ( Purchasing Manager’s Index [PMI] ) and bring down commodities further.” Why would commodities go down if (i) interest rates going up means inflation is expected and a good hedge against it is  to buy commodities. (ii) the cost to carry model for pricing commodities forwards would imply a higher price as interest rates go up.

Not getting the logic here.

Layer Method

Does anybody know how they’re coming up with the values for the top layer? I’m not seeing the connection how they’re coming up with the discount factor and how they’re multiplying the top slice rent.

Insurance Theory

I don’t why I’m struggling with this.  I think I am overthinking it but as I understand it, Insurance Theory states that producers will want to protect themselves against falling prices and will sell futures as insurance resulting in downward price pressure on futures.  So if futures prices are falling, how does this translate into positive returns for the buyers of those contracts?