You invested $1,250,000 with a market-neutral hedge fund manager. The fee structure is 2/20, and the fund has a high-water-mark provision. Suppose the first year the fund manager loses 10 percent, and the second year she gains 20 percent.
What are the management and performance fees paid each year?
Assume management fees are paid at the beginning of each year and performance fees are taken at the end of each year.