2/20 in the equity world is dead. In fact, the whole LP (hedge fund structure) is dead. People want SMA's with clarity and third party auditing. In the CTA world, fees are actually going up. Common now is 0/30. You don't get paid unless you make the client money, but you get a bigger slice. It's an asset class that is going to grow the most in the coming years as people are sick of equity long/short, arb, etc funds that don't deliver.
You don't need a third party audit with SMA. The client owns the account and sees the trades every day.
I manage CTA strategies both in hedge fund structures and individual accounts. For sure the fee structures are coming under pressure with the increasing amount of players. Some tackle this by going towards a pure incentive fee mode as you point out, others by lowers fees across the board. 2/20 is not an easy sell anymore. I'm not a huge fan of the pure incentive structure. It can easily push the manager to increase risks, especially in a drawdown. If you really dig into the CTA players' track records and try to reverse engineer them, you'll see that the vast majority is doing the same thing. There are of course exceptions, but most are trading the same model with slightly different asset mixes, time frames and risk factors. The question should really be if the high fee structures are warranted anymore, for an approach which is not terribly difficult to replicate. I'm part of the business as well and I'm not criticizing CTAs as such. It's a valid strategy which is highly likely to kick buy and hold equities all over the place. But it's becoming mainstream. And it's tough charging 2/20 for mainstream.
What does SMA stand for in this context? I only know it as a Simple Moving Average. LP is the acronym for...? Anyways, what comes next after the hedge fund structure is dead? I mean it's a wonderful forum I can always learn something new from.