![]() ![]() Then the 20% performance fee will be charged on the incremental 7% profit above the 8% threshold. That means that the hedge fund only charges the 20% performance fee if profits for the year surpass the 8% level.įor example, assume a fund with an 8% threshold level generates a return of 15% for the year. The performance fee is only charged when the fund’s profits exceed a prior agreed-upon level. The 20% performance fee is the biggest source of income for hedge funds. How the 20% Performance Fee is Calculated This bonus structure is what makes hedge fund managers some of the highest paid financial professionals. The 20% performance fee is used to reward the hedge fund’s key executives and portfolio managers. The 2% flat rate charged on total assets under management (AUM) is used to pay staff salaries, administrative and office expenses, and other operational expenses. The 2 and 20 fee structure helps hedge funds finance their operations. How the 2 and 20 Hedge Fund Fee Structure Works The graphic below should make the compensation structure clear. However, the 20% fee is only charged when the fund achieves a certain level of profit. ![]() ![]() ![]() A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.Īgain, the 2% fee is charged on the assets under management regardless of the performance of the investments under the fund manager. 2% represents a management fee which is applied to the total assets under management. The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. In the mutual fund industry today, tear sheets are sometimes called "fund fact sheets" and include information about historical performance, the key holdings in the portfolio, and asset allocations.Updated JanuWhat are 2 and 20 (Hedge Fund Fees)? Each page is a summary and could be torn from the larger book. The term is derived from days before the internet when Standard & Poor's produced one-page summary sheets for public companies. The tear sheet is different from the mutual fund prospectus, which mutual fund companies are required to give to their investors and is typically much longer than a tear sheet.Ī tear sheet sometimes refers to a fund company's fact sheet or another one-page piece of marketing collateral.Today, most documents are delivered online, and many types of summaries are considered tear sheets.The tear sheet typically includes key fundamental information and a graph displaying historical performance.In finance, a tear sheet is a one-page summary of a mutual fund or individual company. ![]()
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