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You generalize about every investment model, but can you name vehicles where the '2 and 20' fee structure is standard? It's really only hedge funds and VC fund
by dpapathanasiou 17y ago
You generalize about every investment model, but can you name vehicles where the '2 and 20' fee structure is standard?
It's really only hedge funds and VC funds.
But the real problem with the '2 and 20' (especially in a bad economic climate) is that VCs have less incentive to care about how their portfolio actually performs.
- byrneseyeview 17y ago1. Nobody else targets such high returns. 2. If investment banks structured themselves as hedge funds, they would have a higher payout. Employee compensation routinely hits 50% of pretax profit. Assuming a bank gets an average return on equity of 10%, and bonuses are as large as salaries (lots of small bonuses, a couple really huge ones), that's a 5 and 25 bonus structure. Damn.
- dpapathanasiou 17y agoThat's the argument funds use to justify their fee structure to their LPs. In most cases, the LPs do worse than anticipated specifically b/c of the '2 and 20' fees. As Harry Kat said in the New Yorker article: "They are charging more than they are adding. I'm not saying they don't have skill; I’m just saying they don't have enough skill to make up for two and twenty."