Do HFs still charge a 2/20 fee?
As title states, do HFs still charge a 2/20 fee? Or, is that really no longer the case. Is it a red flag if a fund cannot garner a 2/20 fee?
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Some charge less and some charge more. I believe the industry standard rate is more like 1.5/17.5 now. If you're repackaging beta with a little alpha fees are more like 1/20 over a hurdle rate.
Jim, don’t you guys charge like 50% performance fees?
Well, in their defense, they actually perform (until last year, but I am willing to give them a pass)
They charged 5/44 on Medallion, which has performed for decades, not on the external fund. I think that was closer to 1/10.
Does anyone else think it's suspicious that their internal fund has had such consistent astronomical returns? Something just doesn't seem to add up. Unsuccessful until the Medallion's funds performance in the late '80s and then closed to outside investors since 1993. How verified are their returns? Meanwhile, their funds open to the general public have been nothing special within the HF universe. Also, no hedge fund is as much of a black box/secretive as them. Not saying Jim Simons isn't a genius but maybe he used that academic credibility as a front for malfeasance. Don't they have counterparties on the sell side? I would be very curious to hear what they actually think about them.
I will say that in terms of credibility the Medallion fund did win approval to be investable by their employees in a IRA. That in itself is also pretty strange though because no arrangement like that has ever been approved by the regulators.
depends on the fund...Millenium and Citadel charge 5-6% (mgmt + costs) + 20% (performance) and they still generate > 10% annual returns after all costs
however, most new small startup funds can't get away with charging more than 1% / 15% until they demonstrate good returns...
Not really. "2/20" is like MSRP on a car.
This. No one pays sticker.
Only funds that are generating good returns consistently can do 2/20 now
All helpful - thank you.
Obviously a subjective view - but is it worth joining a firm that cannot get 2/20?
Not really.
Not a good indicator. How much they charge is not as important as how much aum they can raise.
2/20? Also known as 1/10 in those that know how to reduce fractions. I am going to crush in this industry given the questions I see other prospective monkeys asking lol.
A fund’s ability to charge 2/20 vs other lower or higher fees is a function of what is marketed to the LPs and how successful the fund is at achieving its marketed goal. Not simply a function of returns. Example: a market neutral shop with a strong track record of low correlation through cycles and 8% net returns per annum can charge 2/20 to investors who are going to treat the fund like a high yield bond portfolio.
Exactly, the fees are only somewhat related to the fund performance. Clients are also willing to pay more for funds that have been around longer and have more established records, even if they have not performed well in the last few years. I've seen some small quant funds charge 3/30 while having fairly low (but positive) returns.
Depends on the investor. Big institutions, fund of funds, anybody who is writing 50mm+ checks is not paying 2/20 unless your fund is oversubscribed (i.e. Rentech)
LPs prefer lower management, higher performance in my experience.
Another thing that most people don't realize, I certainly did not, but many firms and especially smaller ones will hire a placement agent. Those agents can take up to 25% of those fees. So even if you're at 2/20 - you get dropped to 1.5/15 (yes they get the tail too). Large firms will also use a placement agent but I'd imagine they are able to negotiate lower fees.
Who cares, it’s really just about maximising the net return for a unit of risk. You can charge 9/90 if you provide better than peer risk adjusted returns net of fees within your area / strategy.
can't even remember the last time I've seen 2/20 in credit/distressed.
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