2&20 fee structure no to fizzle out by 2020

Date: Monday, January 7, 2013
Author: Ahila Karan, ProHedge.co.uk

reakingViews expects 2% management fee and 20% performance fee will no longer be an industry standard, despite its surprising persistence over the credit crunch and Eurozone crisis.

During the crisis investors have demanded greater scrutiny over third party administrators and changes to fund. These operational demands and the increase in costs that go with them have kept this fee structure afloat, removing investor bargaining power to reduce fees.

If returns remain weak persistently, 2/20 will not persist. BreakViews predicts in 2020 what the industry will be saying, “investors initially settled for modest returns during good years and capital protection in bad times. But then many realized that the two-and-20 fee structure was out of kilter”

Investors will have a “more earthbound expectations” of returns, and performance fees will shrink to “5 percent or less, often after a minimum risk-free return is reached”.