How much commission do top hedge funds tend to charge?
“2 and 20″ are the legacy fee structures, which is 2% of the assets under management and 20% carry (future gains)…boom…Two and Twenty.
Yes there are some older hedge funds that still charge 2 and 20. The newer HF’s charge a “success fee” or “incentive fee” - which is somewhere between 25 & 50% of your gains using a high water mark for payouts and no annual fee. This ensures HF’s have to exceed the previous gains when they last got paid commissions so they can’t withdraw their fee — but what if you get a big dip in capital? Ah, they have to exceed the previous payout level before collecting additional fees.
The problem with the new model is that a “down year” does sometimes occur and means the hedge fund have to pay their expenses 100% out of pocket —trading fees, staffing, rent, legal, compliance, etc. HF’s pay these expenses in hopes of commissions/fees out running their expenses, but that doesn’t always happen.
I don’t know if the perfect model for free structures has been established yet — but that is the current status of the commission/fee structure.