2 and 20 Fee Structure

The 2 and 20 fee structure is common in hedge funds. It means the fund charges a 2% annual management fee on the assets under management, covering operational costs. Additionally, the fund takes 20% of the profits generated (performance fee). So, if the fund makes significant gains, the manager earns a substantial share of those profits. This structure aligns the manager’s incentives with investors but can lead to high fees during strong performance, which investors should weigh when evaluating such investments.