Given that many hedge funds use side pockets to hold relatively illiquid or hard-to-value assets, how are management fees typically charge?
 
A. Based on cost of asset, with incentive fees when the asset is sold.
 
B. Based on market value of the asset, with no incentive fees when the asset is sold.
 
C. Based on future performance, with incentive fees built in.
 
D. No management fee except for incentive fees when the asset is sold.
 
Answer:A
 
When a side pocket investment is sold or becomes monetized through an IPO, incentive fees are charged based on realized proceeds. Management fees are charged on the side pocket asset based on the asset's cost.

 
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