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

FinTech: Trade Republic, The German Fintech Heavyweight, Wins EU Banking Licence
December 6, 2023     FinTech, News

Berlin-based neobroker Trade Republic has secured a full banking license from the European Central Bank, marking a significant milestone for the fintech. This license empowers Trade Republic to both hold…

Venture Capital: HUGO BOSS Invests In Sustainability-Focused Fashion Venture Fund
December 6, 2023     ESG and Sustainability, News, Venture Capital

HUGO BOSS has reinforced its commitment to sustainability by becoming the inaugural investor in Collateral Good Ventures Fashion I, a climate-centric venture capital fund aimed at expediting sustainability initiatives in…

Artificial Intelligence: xAI, The Musk-Owned AI Startup, To Raise $1B

Elon Musk’s artificial intelligence startup, xAI, aims to secure $1 billion in equity financing to compete with industry leaders such as OpenAI, Microsoft, and Google. The company, co-founded by Musk,…

Digital Assets: Bitcoin Mining Company Phoenix Group Makes Impressive Listing Debut On Abu Dhabi Securities Exchange
December 5, 2023     Digital Assets, News

Cryptocurrency mining firm Phoenix Group (ADX: PHX) has achieved a significant milestone by debuting trading on the Abu Dhabi Securities Exchange, marking one of the Middle East’s initial publicly listed…