CAIA 2 Mock exam answers

May I please ask for help on this one? I’m taking the exam on Thursday:

Question 84

At a time when a hedge fund’s NAV is 20% below its high water mark, an investor is considering redeeming shares in the fund, and investing the proceeds in another hedge fund that has a performance fee of 10%. Assume that both funds have no management fees, and the old fund is projected to earn 10% per year. Which of the following is closest to the break-even rate of return in the next year for the new fund, relative to continuing to invest in the previous hedge fund?


Your answer:** B
Correct answer:C

Can you please share the solution? Thank you

0.10/(1-0.1 perf fee) = 11.11%

You have to pay an extra 10% perf fee for the new manager

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