How do hedge funds handle multiple fund-raising rounds?

G

ginux

For eg. You have a hedge fund.
You raised $100 million in the first round.

6 months later, your fund's return stands at 50%.

You think of raising more money. So you raised $500 million in the second round.

6 months later, your fund's return drops to 20%.

So after 12 months, how do the fund distribute the returns among the 2 sets of investors.

Does this mean:
1st round investors enjoy 20% profit before fees and 2nd round investors suffer -30% losses before fees?
 
Quote from Cavendish:

Different share classes.
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So does this mean:
1st round investors enjoy 20% profit before fees and 2nd round investors suffer -30% losses before fees?
 
in theory yes, although depending on how you structure the fund, fees are generally accrued and paid monthly or quarterly.

so if day one investor makes 8% gross return a month for six months they would recieve 8% * 0.8 return net monthly. also need to take off the management fee which if is standard 2% works out at 16bps a month.

late investor will have received none of the gain, and would have a gross loss of 30%, which is a net loss of 31% or so as the management fee also comes off.

these structures need to be clearly defined in relation to high watermarks and performance fee write backs as well, they are generally non standard.
 
Quote from ginux:

For eg. You have a hedge fund.
You raised $100 million in the first round.

6 months later, your fund's return stands at 50%.

You think of raising more money. So you raised $500 million in the second round.

6 months later, your fund's return drops to 20%.

So after 12 months, how do the fund distribute the returns among the 2 sets of investors.

Does this mean:
1st round investors enjoy 20% profit before fees and 2nd round investors suffer -30% losses before fees?
More...

Hedge funds are very secretive. So its hard to know how they really do it.

Usually they just average profits divided deposits, for the time frame they choose, usually a year.
 
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