Performance calculation

Question 1

Why Sharpe is not ideal to calculate Return of Alternative Investments?

Answer 1

Alternative Investments
Are NOT NORMALLY Distributed

Sharpe assumes the assets are normally distributed

Question 2

Measures of downside risk

Answer 2

VaR
Sortino ratio
(Both don’t assume a normal distribution)

Question 3

Calma rate of return formula:

Answer 3

Past Three years of returns
———————————
Maximum Drawdown

Question 4

Calculation with Hurdle amount and manage fees
What should we do IF we have both?

Answer 4

Subtract the management fee

hurdle amount applied in the BEGGINING VALUE

Fee value is applied discounting Hurdle value and mngmt value

Question 5

What means: “ a fund of fund have 1-10 fee structure?”

Answer 5

1% mngmt fee
10% incentive fee

Question 6

Market water calculation happens:

Answer 6

Only if the
END YEAR VALUE NET OFF MANAGEMENT FEES
Exceeds the water value

Question 7

Difference between hard hurdle rate
Soft hurdle rate

Answer 7

Hard - fee only in the difference (Return- hurdle)

Soft - if Return > hurdle, apply fee over full return