How are hedge fund returns typically structured and paid out to investors?

Hedge fund returns are typically structured as a "two and twenty" fee structure, which means the hedge fund manager receives a management fee of 2% of the assets under management, and a performance fee of 20% of the profits earned by the fund. The performance fee is often referred to as the "carried interest" and is a way for the fund manager to share in the profits generated by the fund. The carried interest is usually subject to a hurdle rate, which is the minimum level of return that must be achieved before the performance fee is paid out. The returns are paid out to investors in the form of periodic distributions, usually on a quarterly or annual basis.