How prominent is the 2 and 20 HF/PE model these days?

Just curious, I grew up having this engrained in my brain. Friend tells me Im a fucking idiot and that no one uses this, just some derivative of this business model. I work at a search fund so our fund doesnt operate that way, thoughts?

Comments (6)

Best Response
Jul 20, 2017

At least from what I've seen, it's a beginning for negotiations. If an LP wants to be in a fund but believes they can move their weight around, then they can either cut fees (1.5/15) or come up with a different structure (Xmm in the fund under 2/20, FROR for co-invest) that essentially accomplishes the same thing. On the flip side, if a fund is over-subscribed, then it's 2/20 or GTFO.

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Jul 20, 2017

Thank you for your insight, much appreciated

Jul 20, 2017

Are you referring to the management + incentive fee model or the specific 2/20 cut?

Jul 20, 2017

The specific 2/20 cut. I know that of course not every fund uses it, but is it still commonplace? Do most megafunds recreate their own derivative of it?

Jul 20, 2017

It's a negotiation with every LP. As dmw86 said, the more leverage the LP has (ticket size, brand etc.) the more they will be able to push it down. I'd say that 2/20 would be the best case scenario for most funds.

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Jul 20, 2017

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