Based on the following question, I have a doubt in terms of how explicit the questions in the exam are and what we should and should not assume.
Ash Lawn Partners, a fund of hedge funds, has the following fee structure:
● 2/20 underlying fund fees with incentive fees calculated independently
● Ash Lawn fees are calculated net of all underlying fund fees
● 1% management fee (based on year- end market value)
● 10% incentive fee calculated net of management fee
● The fund and all underlying funds have no hurdle rate or high- water mark fee conditions
In the latest year, Ash Lawn’s fund value increased from $100 million to $133 million before deduction of management and incentive fees of the fund or underlying funds. Based on the information provided, the total fee earned by all funds in the aggregate is closest to:
A $11.85 million.
B $12.75 million.
C $12.87 million.
The right answer is B and I understand all the calculations. The thing is that the 2% management fee of the underlying fund is calculated based on year-end values, while the question does not mention that.
Why is it stated explicitly that the 1% management fee of the fund-of-fund is based on year-end values while it does not say anything for the 2% management fee of the underlying funds? I would assume that if one fee says year-end and the other does not say anything it is because the other option (beginning of the year values) apply.
Am I missing something? Is the actual exam also this confusing?