I love fundamental theories in positive sciences like the Darwinian Evolution Theory, Game Theory, or Fourier’s Frequency Transformation. Once you have a solid understanding of such fundamental concepts, you can explain so many things, and solve so many different problems in real life. In that sense, they are very economical; you don’t need to memorize lots of boring details of some chaotic practices and applications that might cost anyone many years of mental endurance and obedience in professional life.
The simple performance fee calculation method which I want to introduce in this article is for me such a fundamental theory in a small scale. I’ve started with this relatively abstract backbone model and extended it easily to cover real life cases, like performance calculation with individual high water marks (HWM) for each shareholder. Because a backbone model must be simple and understandable, I will keep it simple in this article; at least simple enough for scientific minds (!). Continue reading
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