Two and twenty (or 2 and 20) is a fee arrangement that is standard in the hedge fund industry and is also common in venture capital and private equity. Hedge fund management companies typically charge clients both a management and a performance fee. Two means 2% of assets under management (AUM), and refers to the annual management fee charged by the hedge fund for managing assets. Twenty refers to the standard performance or incentive fee of 20% of profits made by the fund above a certain predefined benchmark. While this lucrative fee arrangement has resulted in many hedge fund managers becoming extremely wealthy, in recent years the fee structure has come under fire from investors and politicians for varying reasons.
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