For whom are performance fees in hedge funds typically applicable?

Performance fees in hedge funds are structured to reward the hedge fund manager based on the profits generated for the investors. This incentive arrangement aligns the interests of the manager with those of the investors, as the manager earns a percentage of the profits made above a certain benchmark or hurdle rate. By linking compensation to performance, the fund manager is motivated to pursue strategies that maximize returns for investors.

The other options do not accurately represent the structure of performance fees. While all investors across the fund would share in the profits, the performance fee specifically refers to the compensation awarded to the hedge fund manager rather than being a fee paid directly to all investors. Performance fees are not limited to institutional investors; they can also apply to individual or retail investors in the fund. Lastly, regulatory bodies do not receive performance fees; their role is to oversee the fund's compliance with regulations rather than to profit from its performance. Thus, the correct answer reflects the specific nature of performance fees and their role in the compensation model for hedge fund managers.