bps

What are bps (or basis points) and why do they matter?

Quick Definition

In finance, bps is common lingo for referring to transaction related expenses and hedge fund related fees and expenses. 1 bp is equal to 1/100th of a percent, or .01%. For example, a hedge fund that charges a 2% management fee can also be thought of as charging 200 basis points (where 200 * .01 = 2%). Investors and hedge fund managers often consider prospective investments in the context of associated fees they will pay in order to participate i.e. bps, and the total bps assessed across management fees and eligible expenses are an important number that managers seek to control. A fund that charges a particualrly high amount of bps is effectively dragging down its performance and returns, and can be unattractive for a fund's economics.



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