What does "2 and 20" mean?
The traditional hedge fund fee: a management fee of 2% of the money invested each year, plus a performance fee of 20% of the profits.
The performance fee usually applies only above a high-water mark: after a losing year, the fund earns no performance fee until it has made back the losses. Some funds also set a hurdle, a minimum return (say 5%) before the fee starts.
On $1 million that gains $100,000 in a year, "2 and 20" takes $20,000 as the management fee and 20% of the remaining $80,000 gain, $16,000, as the performance fee, leaving the investor about $64,000.
Fees have come down: many funds now charge less than 2% and 20%. Some of the most successful, especially large multi-strategy funds, charge more, passing their costs on to investors.