Two And Twenty

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DEFINITION of 'Two And Twenty'

A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. More specifically, this phrase refers to how hedge fund managers charge a flat 2% of total asset value as a management fee and an additional 20% of any profits earned.

INVESTOPEDIA EXPLAINS 'Two And Twenty'

Considering that some of the top performing hedge funds earn upwards of 50% returns per year and that a given manager can manage billions of dollars worth of assets, this type of fee structure can be very lucrative for managers who consistently earn high returns.

For example, the top earning hedge fund manager in 2006, James Simons, earned around $1.7 billion in earnings. This is quite a bit higher than the highest paid manager on Wall Street, who was paid a relatively "low" $54 million during the same time period.

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