Trying to decrypt this solution where a fee schedule is shown, and then 4 hypothetical gross returns, asking you to calc net active return:

%
Standard Fee. 0.35
Base Fee. 0.20
Sharing. 0.25 (an active return, beyond base fee)
Breakeven active return 1.25
Max annual Fee. 0.90

Hypothetical Returns:
a. <= 0.20%
b. 0.75%
c. 1.25%
d. 1.75%

Net Active Return (NAR) Answers (in order)
a. Total Fee = 0.20 base fee + sharing (0%). So NAR = <= 0.20 - 0.20 = <=0%
b. Total fee = base + sharing = 0.20 + (.55*.25) = .3375. NAR = 0.75 - 0.3375 = 0.4125%
c. Total fee = return - standard fee = 0.35. NAR = 1.25-0.35 = 0.9%
d. total fee = base + sharing = 0.20 + (1.55*.25) = 0.5875. NAR = 1.75 - 0.5875 = 1.16%

Itâ€™s as if you calculate fees the same way every time (base + sharing) except when returns are precisely exactly 1.25%, in which case calculate it some other way, which the CFA readings donâ€™t explain. What does â€śbreakeven active returnâ€ť and â€śstandard feeâ€ť mean?

Iâ€™ll take a crack at this Bish. What I think youâ€™re asking about is hurdle fees and overall compensation for the manager.

Letâ€™s say I invest $100k with asset manager X. They may have an â€śexpected returnâ€ť of 8%. So, if the portfolio returns 10% that year, the manager earns the flat 2% fee no matter what, ($2k) and they gain an extra plus whatever theyâ€™ve made on top of that. (10%-the 8% expected). So that extra 2% is subject to the hurdle rate, letâ€™s say 25%. The managerâ€™s total compensation would be the $2k annual assets under management fee, plus 25% of the excess returns, in this case roughly $500 (10% portfolio return-8% hurdle*portfolio value of $100k)=roughly $2500 managerâ€™s comp. Your portfolio value of 110% at the end of the period-$2500 in fees comes out to 107.5% of initial value.

Iâ€™m lazy and excluding compounding, it may vary slightly depending on timing of cashflows.

In contrast, if the portfolio only gained 5% during the year, the fee would only result in the 2% AUM charge, so $2k. End port value of roughly 103%

In a few words, I think the difference youâ€™re looking for is just the hurdle rate above the expected 8% ($500 if they achieve 10%). If they donâ€™t outperform, no incentive fee.

I hope this helps, if not, happy to help more, yâ€™all got this.