Part 9/14:
Integral to the appeal of hedge funds is their controversial compensation model: the Two-and-Twenty structure. This involves a 2% management fee and a 20% performance fee on profits. Despite potentially inefficient returns or even substantial losses, hedge fund managers consistently earn their slice of the pie, leading to significant financial disparities where investors shoulder the risk while managers secure guaranteed income.
By managing substantial sums—often in the billions—hedge fund managers can rake in millions as steady management fees, regardless of their fund's performance. Even when funds succumb to losses, the managers benefit unless complete disaster strikes.