Performance fees

CFA Level I Alternative Investments
#1

Hi,

In the below question, there is no mention of the performance fees net of the management fee, could anyone help me to advise what am I missing? The answer considers the performance fees net of management fees.

SHM Capital is a hedge fund with USD200 million of initial investment capital. They charge a 3% management fee based on assets under management at year-end and a 15% incentive fee. In its first year, SHM Capital has a 28% return. Assume management fees are calculated using end-of-period valuation.
If the fee structure specifies a hurdle rate of 8% and the incentive fee is based on returns in excess of the hurdle rate, what is an investor’s net return?

Answer: -9.47%

Thanks very much!

#2

I would expect the answer to look like this;
200 beginning capital +28% gross return = 256 GAV.
3% management fee on 256=7.68. So NAV before incentive fee is 256-7.68=248.32
Hurdle is 200+8%=216. P&L earned above hurdle is 248.32-216=32.32
15% of the P&L earned above hurdle is % of 32.32 = 4.85.
Net value after management and incentive fees = 248.32-4.85=243.47
Investor’s net return =21.74%
Clearly this a way off what they are giving!?