44% of hedge funds considering dropping traditional ‘2-and-20’ fee structure

Written by Adam Cadle

07/04/2025

Forty-four per cent of hedge funds are considering changing their fee structures from the traditional ‘2-and-20’ model, according to new research from IG Prime.

The ‘2-and-20’ fee structure refers to fund managers being paid 20% of the fund’s assets under management each year and 20% of the profits over an agreed benchmark. However, hedge funds are increasingly looking at more flexible fee structures that better reflect concerns that the hedge fund industry has gone through a long period of underperformance.

Sixty-four percent of funds considering changing fee structures say they believe it will give them a competitive advantage, whilst 16% of funds said that pressure from clients is making them reconsider their fee structure.

Chris Beauchamp, chief market analyst at IG Prime, said: “Many managers are feeling the pressure to be more flexible when it comes to their fees. There is a perception that the industry as a whole has delivered lacklustre returns over the last decade. That has led to asset allocators getting tougher in fee negotiations.

“While the 2-and-20 structure has served hedge funds well, many funds and their clients no longer feel it’s appropriate.”

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