Understanding hedonova fees, services and more


Investing in alternative assets comes with its own set of considerations, including the impact of investment fees. Understanding the fee structures associated with alternative asset investments is essential for investors and fund managers alike. In this blog, we will delve into the world of alternative asset investment fees, exploring the typical fee structures and how they have evolved over time. By gaining insights into the fees associated with different investment structures, investors can make more informed decisions and optimize their returns in the ever-changing landscape of alternative assets.

## **Types of investment fees at Hedonova**

**a) Management fee:** A 1% management fee is applied to your invested capital annually, deducted from the assets under management. The allocation of blocks is made after deducting the management fee, and additional taxes may apply based on the investor's jurisdiction.

**b) Performance fee:** A 10% performance fee is applied to the total gross profit earned from capital gains and dividends at the end of each year. The fee is calculated based on a high-watermark principle.

## **What is high watermark?**

A high-water mark is the peak value reached by an investment account or portfolio. It determines whether a fund manager can receive a performance fee. This protects investors from paying fees for underperforming investments or paying fees twice for the same performance.

![Illustration explaining the high-water mark concept in investment](https://hedonova.b-cdn.net/Hedonova%20images/%20All%20Hedonova%20blogs/Understanding%20hedonova%20fees%2C%20services%20and%20more/asset-under-management-aum-min.webp)

## **Here's a simple example to illustrate the concept of a high-water mark:**

Let's say an investor initially invests $10,000 in a fund. Over the course of two years, the value of the fund fluctuates as follows:

Year 1: The value of the fund increases to $12,000.

Year 2: The value of the fund decreases to $11,000.

In this example, the high-water mark would be $12,000, which represents the highest value that the fund has reached.

Now, let's consider the calculation of performance fees based on the high-water mark:

Year 1: Since the value of the fund has increased, the investor may be charged a performance fee on the positive returns generated. Let's assume the performance fee is 20%. In this case, the performance fee would be 20% of the increase in value from the initial investment to the high-water mark. So, the performance fee would be 20% of ($12,000 - $10,000) = $400.

Year 2: Since the value of the fund has decreased below the high-water mark, there would be no performance fee charged in this year. The investor would only pay the management fee or any other applicable fees.

The high-water mark ensures that the fund manager is only eligible to receive a performance fee if the fund's value surpasses the previous highest point. It prevents the fund manager from earning fees on the same performance multiple times or from receiving fees when the fund is performing poorly.

Overall, the high-water mark protects investors by aligning the fund manager's compensation with the fund's performance, ensuring that performance fees are earned based on generating new positive returns above previous high points.

## **Tax effects of paying fees**

The tax effects of paying fees can vary depending on the specific fees and the tax regulations of the jurisdiction in which the taxpayer operates. Here are some general points to consider:

Management and performance fees: Fees paid to investment managers or advisors are typically deductible as business expenses for tax purposes. Deducting these fees can reduce the taxable income of the taxpayer, resulting in lower taxes.

Tiered fees: Tiered fee structures often provide lower fee rates for larger investments. These lower rates can help reduce expenses and potentially lower the taxable income.

It's important to note that tax laws and regulations can vary significantly between jurisdictions. Therefore, it's recommended to consult with a tax professional or accountant who is familiar with the local tax laws and regulations to determine the specific tax effects of paying fees in a particular situation.

## **Comparing investment fees: How Hedonova stacks up**

![Comparison table of investment fees, highlighting Hedonova's position among other options](https://hedonova.b-cdn.net/Hedonova%20images/%20All%20Hedonova%20blogs/Understanding%20hedonova%20fees%2C%20services%20and%20more/fee-comparison-min.webp)

Let's consider John, an investor who decides to invest $100,000 in both Hedonova and XYZ Investments. We'll analyze the potential returns he might receive based on the average management fees and performance fees provided earlier.

## **Hedonova**

Hedonova charges an average management fee of 1% on invested capital. For John's $100,000 investment, the management fee would amount to $1,000 per year. In addition, Hedonova has an **average performance fee of 10%**. Assuming the investment performs well, let's say it generates a 20% return on investment over the course of a year. The performance fee would be calculated on the profit generated, which in this case is $20,000. Thus, the performance fee would amount to $2,000.

In total, John would pay $1,000 for the management fee and $2,000 for the performance fee. After deducting these fees, John would be left with a net return of $17,000 ($20,000 - $1,000 - $2,000) from his initial $100,000 investment.

## **XYZ Investments**

XYZ Investments, on the other hand, charges an average management fee of 2% on invested capital. For John's $100,000 investment, the management fee would amount to $2,000 per year. Additionally, XYZ Investments has an **average performance fee of 20%**. Assuming the same 20% return on investment as before, the performance fee would be calculated on the profit of $20,000, resulting in a fee of $4,000.

After deducting the management fee of $2,000 and the performance fee of $4,000, John would be left with a net return of $14,000 ($20,000 - $2,000 - $4,000) from his initial $100,000 investment.

## **Comparing the returns**

By investing $100,000 in Hedonova, John would potentially earn a net profit of $17,000, whereas investing in XYZ Investments would result in a net profit of $14,000.

It's important to note that investment returns can vary based on market conditions and the performance of the underlying assets. The example above is hypothetical and provided for illustrative purposes only.


Investing in alternative assets requires a thorough understanding of the associated investment fees to optimize returns and make informed decisions. At Hedonova, investors encounter a 1% management fee on invested capital annually and a 10% performance fee on total gross profit earned from capital gains and dividends at the end of each year. The concept of a high-water mark is utilized to determine when a fund manager can receive a performance fee, protecting investors from paying fees for underperforming investments or paying fees twice for the same performance. Comparing investment fees with other firms, Hedonova's fee structure proves more advantageous, potentially yielding higher net profits for investors. Considering the tax effects of paying fees is essential, and consulting with a tax professional is recommended due to varying tax regulations. Understanding and managing investment fees play a crucial role in achieving success in the ever-changing landscape of alternative assets.

Understanding hedonova fees, services and more

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