...He said that as hedge fund assets grow in size, the fund managers don’t really need to worry as much about performance.
That is because hedge fund managers are typically paid through a compensation structure commonly known as the “2 and 20,” which stands for a 2% management fee and a 20% performance fee. That means a hedge fund manager would charge investors 2% of total assets under management and 20% of any profits.
When you have $20 billion in assets, you’re getting $400 million just from management fees.
“That 20% becomes less important,” Buffett said.