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Equitable Distribution and Hedge Funds

BY Steven Cusumano
August 30, 2012

As discussed last month, valuing a divorcing party's interest in a hedge fund management company and/or general partnership differs from valuing an interest in a professional corporation, an operating company or an investment management company. This is primarily because hedge fund managers earn income two ways: from base management fees and from incentive fees.

Valuation of a Hedge Fund

In valuing a hedge fund, an appraiser should consider the size and structure of the hedge fund in terms of employees, number of funds managed, its level of assets under management, how fees are charged to investors, and the reliance on a single individual or a few individuals to make investment decisions. It is important to examine and analyze trends in the subject hedge fund's assets under management (AUM), management fees, incentive fees and compensation paid to the hedge fund's principals and employees. Also, be sure to consider the current state of the U.S. and global economies and the securities markets.

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