What do hedge funds make ? 2% and 20% fee explained
Channel: Retail Investing & Trading
Date: 2019-05-07

With the growing popularity of Showtime Billions show I am sure that a lot of people been asking them self what does 2 and 20 when it comes to hedge funds actually means. 

To better explain the 2 and 20 fee structure please watch the video or read the description.

2% and 20% fee are 2 type of fees. First we have 2% which is a commission fee that every investor in a hedge fund pays regardless does hedge fund makes or loses a money. 

If for example hedge funds return negative 4.6% on your total investment for the year, hedge fund managers will still charge you a 2% fee just for money management. 

This seems highly unfair but it is a great way for those rich managers to make a lot of money. 

The other 20% is basically a incentive % that managers make if they beat the market. In other words, if managers return better than for example 8% (usual target for hedge funds and roughly an S&P Index avg for past 100 years) then they charge you additional 20% management fee on the difference between the total return and the 8% that you agreed on. 

Now, lately because hedge fund industry didn't perform as good as everybody are expecting for it to perform and many hedge funds were returning less than S&P Index, the hedge fund managers started charging different fee structure which is more fair to the investors. 

These days the popular fee structure is something like 1-10-10 where 1% is management fee that hedge funds are charging regardless and 10% and 10% are actual fees that hedge fund managers charge only if the return more than 10% for the difference. 

Enjoy the video and make sure to follow Billions show. It is really great show !

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