Introduction to Alternate Investment Markets

1. An investment purchased in Year 1 for $10 million and sold in Year 4 for $20 million. The LPs receive 80% of
profits, and the GP receives 20%. The hurdle rate is 8%. Calculate the return and share of LPs and GPs.

2. An investment purchased in Year 1 for $10 million and sold in Year 4 for $20 million. The LPs receive 80% of
profits, and the GP receives 20%. The hurdle rate is 8%. a catch-up clause allows the GP to receive 100% of
the distributions above the hurdle rate until 20% of the profits generated is received, and then every excess
dollar is split 80/20 between the LPs and GP. Calculate the LPs and GPs return.

3. American waterfall Deal-by-Deal with Clawback Provision

Investment Year Amount ($ MN) Profit

No. Invested Sold Invested Sold $MN % GP at 20%
1 1 4 $10 $20
2 2 5 $20 $35
3 2 7 $40 $80
4 3 7 $20 $20
5 3 8 $35 $25
6 4 9 $25 $20
7 5 9 $30 $0
8 5 10 $20 $0

TOTAL

4. European waterfall Whole-of-funds

Investment Year Amount ($ MN) Profit

No. Invested Sold Invested Sold $MN % GP at 20%
1 1 4 $10 $20
2 2 5 $20 $35
3 2 7 $40 $80
4 3 7 $20 $20
5 3 8 $35 $25
6 4 9 $25 $20
7 5 9 $30 $0
8 5 10 $20 $0

TOTAL
 5. Find out Sharpe’s and Sortino’s measure of the following Alternate Investment funds
Alternate Fund Portfolio Return (%) Downside Risk/Deviation SD (%)
Aim Saver 17 4 6
ABC Top Fund 20 5 9
Sunlite Fund 24 6 12
Small Fund 28 10 14

The risk-free rate is 8 %. Also, rank the mutual funds according to both measures.

6. Find out Sharpe and Sortino’s measure of the following funds

Alternate Fund Portfolio Return (%) Downside Deviation SD (%)

KNR 12.5 4 6
Soft world 16.5 3 7
JKR 22 8 10
Tiger world 22.75 12 14

The yield on Government Securities is 6.5 %. Also, rank the funds according to both measures.

7. Suppose there are two different investment portfolio schemes, A and B, with 10% and 15%
annualized returns, respectively. Assuming that the downward deviation of A is 4%, whereas
for B is 12%. Also, considering the risk-free rate of 6%. Calculate the Sortino ratio and rank
them accordingly.

8. Fund A has registered a compound annual growth rate (CAGR) of 30% since inception and has
had a maximum drawdown of 15% in its history; Fund B has a CAGR of 35% and a maximum
drawdown of 20%. Calculate the MAR ratio and suggest which fund is better based on the
MAR ratio.

9.  Consider two hedge funds, M1 and M2, with Compound Annual Growth Rates (CAGRs) of
30% and 45%, respectively. Now, supposing that both M1 and M2 have similar maximum
drawdowns of 15%. Calculate the MAR ratio and suggest which fund is better based on the
MAR ratio.

10.Let’s suppose an investor invested in ABC fund five years ago with an initial investment of
$20000, and over these 5 years, it reached a value of $50000 but went as low as $15000 in
times of the unstable economy. calculate the Calmar ratio.

11.Suppose A hedge fund has had an annual rate of return for the past 3 yrs is 25%. The fund
started its activity with $10,000, which rose to $25,000 and then dropped to $8,000 due to
crises. Another hedge fund, B, has an average annual compound return of 20%, and the
Maximum drawdown is 40%. Which fund would benefit the investor based on the Calmer
ratio?