Two and Twenty

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Definition of 'Two and Twenty'

Two and twenty is a fee structure used by hedge funds and other alternative investment managers. The fee is typically 2% of assets under management (AUM) and 20% of profits.

The two percent management fee is charged on a quarterly basis and is based on the average AUM for the quarter. The twenty percent performance fee is charged only when the fund generates a profit. The performance fee is calculated on the net profits of the fund after all expenses have been deducted.

The two and twenty fee structure is often criticized for being too high. Critics argue that the fees are excessive and that they discourage managers from taking risks. However, supporters of the fee structure argue that it is fair and that it allows managers to be compensated for their skill and expertise.

The two and twenty fee structure is not the only fee structure used by hedge funds. Other common fee structures include flat fees, performance-based fees, and hybrid fees. Flat fees are charged at a fixed rate, regardless of the performance of the fund. Performance-based fees are charged as a percentage of profits, but there is no management fee. Hybrid fees are a combination of flat fees and performance-based fees.

The two and twenty fee structure is a complex and controversial topic. There are pros and cons to the structure, and it is important for investors to understand the structure before investing in a hedge fund.

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