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


In this case you do not deduct the hurdle rate amount, because it is a soft hurdle rate. If it was a hard hurdle rate instead you do.