SIE Understanding Products and Their Risks Question 24: Answer and Explanation

Question: 24

Which of the following is an example of a hedge fund manager's annual fee?

• A. 8.5 percent of the fund's offering price
• B. Two-and-twenty
• C. 12b-1 fee
• D. Contingent deferred sales charge (CDSC)

Correct Answer: B

Explanation:

B: A typical hedge fund manager's annual fee is 2 percent of the assets under management, charged quarterly, and a performance fee of 20 percent of the profits. Because of the competitive market for accomplished fund managers, the performance fee may be even higher for larger funds. Choices A, C, and D are sales and distribution charges for mutual funds but are not typically part of the hedge fund manager's annual fee.