With Fee Compression on the Rise, Is it Finally Time to Say Hindsight is 2 and 20?
Reprinted with permission from American Bar Association Business Law Section, March 2019
During the hedge fund industry's heyday, 2 and 20 — meaning a two percent management fee and twenty percent performance fee — became the quintessential fee structure. Although the 2 and 20 model was significantly higher than the typical fees associated with other active and passive investments, investors were willing to pay more because the average fund's performance justified the higher fee. But, over the next 12 years (particularly those following the Great Recession) the average return for the HFRX Global Hedge Fund Index was an anemic 0.6 percent, which was 4.2 percent lower than the next lowest index (the Bloomberg BC Aggregate Bond Index). Read More
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