The "2:20 Ratio" is a financial metric often used in the context of hedge funds and private equity. It refers to the compensation structure where fund managers typically charge a 2% management fee on assets under management and a 20% performance fee on profits generated. This model incentivizes managers to maximize returns for their investors. This ratio is significant because it aligns the interests of fund managers with those of their clients. By earning a portion of the profits, managers are motivated to perform well, while the management fee helps cover operational costs. Understanding the 2:20 Ratio is essential for investors evaluating fund performance and fees.