2-and-20

A common fund fee shorthand: a 2% annual management fee on the contractual fee base plus a 20% carried-interest share of eligible profits, subject to the fund agreement.

2-and-20 in round numbers

If the agreement applies a 2% annual management fee to a US$200m fee base for a given year, that year’s fee is US$4m. The rate or base may change during the fund’s life. A 20% carry entitlement applies to eligible profits under the agreed hurdle, catch-up, waterfall and clawback terms; it is separate from the management-fee calculation.

Shayne Fitz-Coy’s definition of 2-and-20

Two and twenty is what makes the world go around, and one of the best business models in the history of the world.

Two percent on committed capital pays the lights whether or not anything works. Twenty percent of the upside pays for everything else.

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