Describe the mechanics of incentive fees

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Reference no: EM131684807

Activity 1 - One of the features that distinguishes alternative investments from traditional investments is the compensation structure. While traditional investment vehicles generally only charge a management fee, it is common for alternative investments such as hedge funds, private equity and venture capital to also charge an incentive fee.

a. Describe the mechanics of incentive fees and the explain the rationale for this alternative compensation structure.

b. How do incentive fees influence the behaviour of the manager and do they lead to any agency issues?

c. If the answer above is 'yes' then how can these agency issues be resolved

Activity 2 - Traditional mean/variance measures such as the Sharpe ratio show that for the period 1994-2016 the risk adjusted performance of most alternative investments is superior to traditional investments.

However, it can be argued that this approach seriously understates the risk of alternative investments, why is this the case?

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The paper is in relation to the alternative investment. The incentive fees, arising of agency issues and its resolution have been discussed in the activity 1 of the assignment. Activity 2 consist of discussion on risk associated with alternative investments and the effects of sharpe ratio on the decision of the investors and its loop holes.

Reference no: EM131684807

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inf1684807

1/19/2018 4:18:31 AM

Much obliged to you such a great amount for helping me with everything! I am particularly appreciative for your assistance with the 'Letters to the Experts.' I truly got some smart thoughts from you. I truly delighted in conversing with you. Much thanks to YOU.

len1684807

10/20/2017 5:04:28 AM

Subject: Corporate Finance. No Of Pages/Words: 2 000 words. There are two activities in the attached file. Both 1,000 words max. How do incentive fees influence the behaviour of the manager and do they lead to any agency issues?

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