Video Overview:

I love models that require intelligent but elegant logic. This template is a great example. The entire model runs on the change in NAV over time. The user can plug in account performance over time and see the resulting fees a hedge fund earns based on two factors:

Asset Management Fee

The asset management fee is calculated based on the beginning period Net Asset Value (NAV).

Soft Performance Hurdle

This is a little more complicated to understand. It is based on a periodic hurdle rate that is applied to the beginning period NAV. There is also a high watermark in place. In order for the performance fee to take effect, the high watermark must have been exceeded, as well as the hurdle rate for the period. If those two things are true, then the performance fee is earned as a percentage of the total amount of profits that exceeded the previous high watermark.

This model is a really good simulation tool that lets prospective investors in a hedge fund see how this specific fee structure works, given various account performances over time. It is also good for the hedge fund manager as a way to see possible earned fees based on account performance.

There are a total of 15 periods, and if you want to extend that down, simply drag the formulas in the last row as far down as you need.

Note, there are a wide range of fee structures that can be in place, this shows an example of one fairly common type. If you need something custom or a modification on the template here, I do offer custom financial modeling services.

There are plenty of visualizations included that make it easier to see the effects of various scenarios over time.

Want all the financial models I’ve ever built? see the below bundle: