QB Accounting

Popular posts from this blog

PERFORMANCE FEE EQUALISATION

Image
When setting up a fund, one of the first decisions a manager has to make is the choice of fund structure. Partnership structures are very common in US domestic funds because they offer tax transparency to investors. Accounting calculations for partnership structures are relatively straightforward. Individual capital accounts are maintained for each partner and performance fees are calculated at the capital account level per partner. Therefore, there are no equalization issues for managers to contend with.   In Europe, a combination of other fund structures is frequently used which requires calculations of per share/unit price.   In calculating performance fees in these structures, the overriding concern among managers has been in determining how to fairly reward the manager for positive performance while at the same time ensuring investors are treated equitably. Essentially, this is where the various forms of performance fee Equalisation come in.   One of t...
Read more

Equalization accounting

Image
Equalization accounting Historically, hedge funds typically provide for some form of performance-based compensation to the investment manager of the hedge fund (as set out above under section 3).   This has generally been a percentage of the increase in the gross assets over the prior high water mark.  For example, if the prior performance fee period had a net asset value of 100 and the following period's net asset value was 120 then the further performance fee for the period will be paid on the amount of that increase which is 20 and the high water mark for this following period would be set at 120. Thereafter if the net asset value fell below 120, no performance fee would be payable.  Although relatively simple to understand, there were certain situations where individual shareholders would suffer a fee not in line with performance and, consequently, the investment manager would receive either too large or  too small a fee relative to the individual shar...
Read more

Types of hedge fund structures

Structural Configurations of Hedge Funds: A Closer Look In the world of hedge funds, the choice of legal vehicle is just the beginning. How these vehicles are structured can significantly impact how funds operate, attract investors, and meet regulatory requirements. Here, we delve into the most common structural configurations used for hedge funds: 1. Stand-alone funds: Stand-alone funds are the simplest and most straightforward configuration. They involve a single vehicle, which can be an exempted company, a partnership, or a unit trust, pursuing a single investment strategy. These are often used in startup scenarios or when the target market doesn't require the complexity of a master-feeder structure. Even if a fund operates on a fund-of-fund basis, it remains a stand-alone vehicle, investing its own capital into other funds. 2. Master-feeder funds: In a master-feeder structure, multiple funds (feeder funds) pool their assets and invest them substantially into a separate vehic...
Read more