If you already see hedge fund fees as exorbitant, you ain’t seen nothing yet. Over the past two decades, the hedge fund industry has kept 64 cents of every dollar of gross profits that it has generated above the risk-free rate.
You’d be excused for thinking this is a mathematical impossibility. The predominant fee arrangement in the hedge fund industry is the so-called 2-and-20 fee structure, under which a fund charges an annual management fee of 2% of assets under management and a performance incentive fee of 20% of any profits. So how can hedge funds keep more than 20 cents of every dollar of profit, on top of management fees?
More here – MarketWatch
