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

Alternative Investments: Accelerate Launches An ETF For Alternative Assets
November 25, 2020     Alternative Investments, News

Accelerate Financial Technologies launched its OneChoice Alternative Model Portfolio in September. Aimed at hard-pressed advisors and portfolio managers, the strategy offered a quick and easy way to put together a…

Digital Assets: Japanese Financial Group SBI Launches Crypto Lending
November 25, 2020     Digital Assets, News

SBI Group (TYO: 8473) is launching a crypto lending service through SBI VC Trade, its crypto-focused exchange subsidiary. SBI said it will initially allow customers to tender only bitcoin (BTC),…

FinTech: Hippo Insurance Gets $350M Funding From Mitsui Sumitomo Insurance
November 25, 2020     FinTech, News, Venture Capital

Hippo, the home insurance unicorn, announced Tuesday an investment of $350 million from Mitsui Sumitomo Insurance Company, Limited, a subsidiary of MS&AD Insurance Group Holdings, Inc. In July, Hippo raised…

Venture Capital: Astanor Ventures Launches $325M Fund For Impact Investing in Agtech

Based in Luxembourg, Astanor Ventures combines capital, technology, and sector expertise to invest in businesses that build regenerative, scalable, and nourishing food solutions. Using this philosophy, Astanor has invested in…