How is the "2 and 20" fee structure defined?

The "2 and 20" fee structure is commonly used in the hedge fund industry and is characterized by a management fee that is set at 2% of the total assets under management and a performance fee that equals 20% of the profits generated by the fund. This model aligns the interests of the fund manager with those of the investors. The management fee provides the fund manager with a steady income to cover operational costs, while the performance fee incentivizes them to maximize returns on the investments, as they benefit directly from the fund's success. This structure is designed to reward managers adequately for their expertise and performance in managing investments.

In contrast, the other options do not accurately reflect the well-known "2 and 20" format, as they either incorrectly define the components of the fee structure or misinterpret the nature of the fees involved.