Hedge Fund Simulation Model

Description
This model is set up in a way so the user can enter an initial deposit amount (invested amount by the LP) and then input the periodic percentage change in net asset value (NAV) to see how all fees and returns are calculated.


Main Inputs:

• Initial Deposit
• Periodic Percentage Change in NAV
• Asset Management Fee (applies to beginning period NAV)
• Performance Fee (subject to high watermark and periodic hurdle rate)
• Periodic Hurdle Rate

This template was designed after doing a highly involved joint venture simulation for a mid-size hedge fund and their attorney has reviewed all model logic. The agreement was complex and convoluted, but being able to put all the agreement logic into a spreadsheet and see how it works with arbitrary changes to NAV is valuable when explaining how the hedge fund fees work to a potential investor.


The high watermark ensures that fees are not earned twice as losses are earned back (if there were losses). Only performance fees can be earned on the net increase in the high watermark of the account and if the periodic hurdle rate was met after accounting for asset management fees. The flow of this model is a good learning and demonstration tool.


Note, the hurdle rate is considered a 'soft' hurdle, and in this case that means if the hurdle is met, then the total fee is based on the entire profit, not just the amount that exceeds the hurdle rate. This fee will never reduce the NAV below the previous high watermark based on the designed logic.


I included visualizations for many key financial metrics, which makes the model even more articulate.


This template is also included in two bundles:
- All Models Bundle
- Joint Venture Waterfalls