Chartered Investment Manager (CIM) Practice Exam · Question
How are performance fees typically structured in some alternative investment funds, such as hedge funds?
Performance fees in alternative investments are typically structured as a percentage of the profits generated. They often include a 'high-water mark' (ensuring
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Question: How are performance fees typically structured in some alternative investment funds, such as hedge funds?
Answer options: ✅ A percentage of the profits generated, often with a high-water mark and/or hurdle rate.
- A fixed percentage of assets under management (AUM) regardless of performance.
- A commission paid on each trade executed.
- A flat annual fee irrespective of portfolio size or performance.
Correct answer: A percentage of the profits generated, often with a high-water mark and/or hurdle rate.
Explanation: Performance fees in alternative investments are typically structured as a percentage of the profits generated. They often include a 'high-water mark' (ensuring fees are only paid on new profits) and/or a 'hurdle rate' (requiring a minimum return before fees are charged).
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