Glossary · fee
Performance Fee
Also known as: carried interest, incentive fee, 2 and 20
- Definition
- A performance fee is the share of investment profits that a fund manager or alternative-investment vehicle charges above a stated hurdle rate. Common in hedge funds (typically 20% of profits) and private equity (typically 20% of profits above an 8% hurdle).
The classic "2 and 20" hedge-fund fee structure means 2% management fee plus 20% performance fee. Performance fees usually crystallise annually subject to a "high water mark" — the fund must exceed its previous peak NAV before performance fees apply again. Private-equity carried interest typically uses a deal-by-deal or whole-fund waterfall structure with a 6–8% preferred return hurdle. Singapore tax treatment of carried interest depends on the structure (13O / 13U / 13D context).
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