Ok so in the example in Elan Guides as well as the question in Elan Guides, the calculation of hedge fund fees confuses me. For the first year, they use the hurdle rate of 0.04 and they multiply this by the opening amount of the fund (100 million). This makes sense to me. The fund goes up that year, down the next, and then up the next year past the high water mark at the end of the first year.
However, this time around, when they calculate and deduct the hurdle rate, they use 0.04*140 million (the value at the end of the year, not the beginning)
Both questions do the same thing. Why is the hurdle rate calculated using the opening balance on the first year, but uses the closing balance on the third year?