Why 2 and 20 Fees May Soon Be History

June 24, 2019 | Hedge Funds

According to Hedge Fund Research, only 30% of hedge funds now charge the 2 and 20 structure

An unimpressive performance record, investor resistance to high fees and difficult industry conditions are squeezing hedge funds across the board. Average management fees crashed to a record low of 1.43% in the first quarter of 2018, according to Hedge Fund Research.

But there’s a new kid on the block. A “first-loss” fund structure puts the onus of some of the losses on the hedge fund manager.

How first-loss funds work

In this structure, a hedge fund manager stands alongside the investor when it comes to losses. Generally, in these funds, the manager also invests her own money, and agrees to bear some of the losses up to a pre-defined limit, e.g. 10%.

In the event the fund makes a profit, the manager gets a cut – which could be much higher than 20%.

Not everyone has ditched 2 and 20

Billionaire John Paulson used the first-loss structure when availing funding from Prelude Capital, Topwater Capital and Boothbay Fund Management. Paulson & Co put up its entire asset base to cover for the eventuality of a 10% loss. The flip side? If the fund makes a profit, Paulson gets to keep 55%.

Element Capital is another firm that is bucking the 2-and-20 trend. According to Bloomberg, the firm recently reported it will charge 2-and-40 while it scales back its operations and size of its funds.

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

  • This field is for validation purposes and should be left unchanged.


Latest Alternative Investment News

Artificial Intelligence: AMD Takes On Rivals In The AI Chip Sweepstakes
December 7, 2023     Artificial Intelligence, News

Chipmaker AMD (NASDAQ: AMD) has unveiled a range of innovative AI solutions spanning from data centers to personal computers. The AMD Instinct MI300 Series features data center AI accelerators, while…

Digital Assets: Robinhood Debuts Crypto Trading On Its App In The EU
December 7, 2023     Digital Assets, FinTech, News

Robinhood (NASDAQ: HOOD) has launched its Crypto app in the European Union (EU), allowing eligible customers to engage in crypto trading with the added incentive of earning Bitcoin rewards. Customers…

FinTech: Samsung Electronics Ties With Mastercard’s Wallet Express
December 7, 2023     FinTech, News

Samsung Electronics (KRX: 005930) and Mastercard (NYSE: MA) have partnered to launch the Wallet Express program, offering banks and card issuers a cost-effective way to expand digital wallet offerings. Through…

Venture Capital: Revaia, Europe’s Biggest Female-Led VC Firm, Racks Up $160M For Second Fund
December 7, 2023     ESG and Sustainability, News, Venture Capital

Revaia, Europe’s largest female-founded venture capital firm, has successfully raised €150 million ($160 million) for its second fund, Revaia Growth II. The funding was secured from sovereign wealth funds, family…