The Role of Compensation in Aligning Hedge Fund Manager and Investor Interests

The manager of an unregistered hedge fund is typically compensated by a fee based on a:

percentage of assets under management plus a percentage of profits

The manager of an unregistered hedge fund is typically compensated by a fee based on a percentage of the assets under management (AUM). This fee is commonly referred to as a management fee and is usually between 1% and 2% of the AUM. The manager may also be compensated by a performance fee, also known as a performance-based incentive fee or a carried interest, which is typically between 20% and 25% of the profits generated by the fund. The performance fee is usually subject to a high-water mark, meaning that it is only paid if the fund exceeds its previous highest value. These fees are designed to align the interests of the manager with those of the investors, as the manager’s compensation is tied to the success of the fund.

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