Two and twenty turns a 10% gross year into 6.4% for the investor. Run that gap for twenty years and the manager's share is roughly half the money.
Take a $100 million fund that returns 10% gross in a year, so $10 million of gains. The management fee is 2% of assets — $2 million — and it is charged whether the fund made money or not. The performance fee is 20%, normally taken on profit net of that management fee: 20% of $8 million is $1.6 million. The investor keeps $6.4 million. Ten gross became 6.4 net.
— Educational, not financial advice.