• Two refers to a standard management fee of 2% of assets per year, and 20 means an incentive fee of 20% of profits above a certain threshold, known as the Threshold Rate.

  • This lucrative commission mechanism has led many hedge fund managers to become multimillionaires or even billionaires, but in recent years it has come under scrutiny from investors and politicians.
  • A high watermark can be applied to the performance fee; it states that the fund manager will only be paid a percentage of profits if the fund’s net worth exceeds its previous maximum value.