Based on my read of the Glaucus report what they are suggesting is this:
Blue Sky make representations that their historical returns are 15% per annum after fees, so lets say 16.5% after the profit share (20% of $over 8%)
So you rock up with $100k into the fund (call it a 3 year fund). Blue Sky charge you $6k in management fees upfront, so your balance is $94,000.
Year 1 comes along they review the businesses and say - yay, the value has gone up - the assets in the fund are now worth $109,510 ($94,000 + 16.5%), let me send an invoice to the fund for $1,310 (rounded for simplicity). Your assets in the fund are now worth $108,200.
Year 2 comes along they review the businesses and say - yay, the value has gone up - the assets in the fund are now worth $126,050 ($108,200 + 16.5%), let me send an invoice to the fund for $1840 (rounded for simplicity). Fund value $124,210.
Year 3 comes along they review the businesses and say - yay, the value has gone up - the assets in the fund are now worth $144,700 ($124,210 + 16.5%), let me send an invoice to the fund for $2110 (rounded for simplicity). Fund value $142,590.
Now lets fast forward how Glaucus are predicting this fund to end (assuming that the underlying assets reflect their premise) to the end when we exit the fund... at this point your sitting there saying hey look at this, I invested $100k and its now worth $142k - GREAT OUTCOME..... until....... awww we cannot realise the asset, the merry go round has stopped and we cannot off load it into another fund... so we had to exit for $50k.... BUT, you only get $44,740 because we also had to pay the outstanding creditors... us (our performance fees).
Now that is why alternative fund manager are required to have high levels of trust. Because if the above happens, good luck creating another fund and raising any more capital. Its one thing for an investment to go bad, just own it - it happens everyday, but if you are re-valuing a dud up, year on year, and it tanks at the end - then you will be in trouble.
Note that I have never invested in one of their closed funds, so I cannot say for certain.
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