Incentive Fees - Impact on Performance Measurement of Hedge Funds

Date created
2010-08
Authors/Contributors
Author: Lu, Yao
Author: Gao, Yujie
Abstract
This paper estimates the incentive fees impact on hedge funds returns by estimating the factor model using gross return and net return respectively. We used the latest twelve year data, including the high volatile data of 2008 and 2009, to do the regression. As a result, we find that the beta is underestimated from the regression, implying that the incentive fees do have the impact on hedge fund performance. Additionally, we adopted a rolling-over regression technique to duplicate the performance of the hedge funds using ten hedge fund strategies. We find that some additional beta return can be captured by replicating through the gross returns. In summary, the incentive fees should be taken into consideration when we are measuring the performances and risk exposures of the hedge funds.
Document
Description
FRM Project-Simon Fraser University
Copyright statement
Copyright is held by the author(s).
Scholarly level
Peer reviewed?
No
Language
Attachment Size
FRM 2010 Lu, Y. and Gao, Y..pdf 508.9 KB