Management Fees in Require Return

CFA Level III Portfolio Management
#1

If problem asks for a before tax return how are managment fees supposed to be calculated:

Assume Taxable Account and Inflation is Taxed:

  1. [(After Tax Required Return + Inflation) / (1-T)] + Mgmt Fee

  2. [(After Tax Required Return + Inflation + Mgmt Fee) / (1-T)]

Thanks!

#2

Ignore management fees for individuals. They’re never considered.

#3

In the CFA 2014 Level 3 Mock exam Question 6B, they state that:

Elmar’s return objective calculation is deficient because it ignores two factors that endowment faces over time:

  1. wrong inflation rate is used

  2. management fee should be included in the required return

Why do we have to add the management fees where it doesn’t seem to mention it anywhere in the curriculum…

#4

That question is for an endowment, not an individual.

#5

I know, but given that the thread is about Management fees in required return, I thought I would ask why they include it for the endowment when it isn’t mentionned anywhere in the curriculum that management fees should be added to the endowments required return. Should they also be added for the other institutional investors?

Thanks in advance

#6

Pg. 458 of the text “3.1.2. Return Objectives” for a foundation, mgmt fees are mentioned and the calculation is shown. It’s the same thing for Endowments, page 466 mentions the sum of spending rate, inflation, and cost of generating investment returns.

I’ve never seen it mentioned for banks or insurance companies. And as mentioned aboved, I’ve never seen fees considered for an individual investor.

#7

That answers it! Thanks NineNineSix