hedge fund fees calculated incorrectly

It seems like CFAI defines hedge fund fees incorrectly. Let’s say a fund charges 1 % management fee and 20% incentive fee on an annual basis (let’s not worry about high watermarks, monthly or quarterly payments, benchmarks, etc). If it makes 30% a year, since incentive fees are charged on the profits net of management fees, total fees should be 1% + 20%*(30%-1%) = 1% + 5.8% = 6.8%. CFAI materials say fees are going to be 1% + 20% * 30% = 7%.

Shhhh… What the heck are you telling everyone for?

Sorry, Joey! I didn’t realize that potential investors of your company might be reading this thread.

Very interesting. Btw Joey, do Hedge Funds send propective institutional investors RFPs? Or is this only something large asset management firms do? I can imagine that the language describing fees might not be very detailed.

I believe the legal jargon pertaining to fees often reads: “all your moneys are belong to me”