Economics
Management Fee
Management Fee
Annual fee (typically 1.5-2%) paid to the GP to cover operating expenses.
Management fees are annual fees paid by the fund to the General Partner to cover operating expenses and compensation. Unlike carried interest, management fees are paid regardless of performance.
Typical structure
- Investment period (years 1-5): 1.5-2.0% of committed capital
- Post-investment period (years 6-10): Often steps down to 1.0-1.5% of NAV or invested capital
What fees cover
- GP staff salaries and benefits
- Office space and operations
- Travel and deal sourcing
- Fund administration
Fee variations
- First-time funds may charge lower fees
- Large funds may have fee breaks at certain sizes
- Co-investments typically have reduced or no fees
Impact on returns
- A 2% annual fee over 10 years can consume 15-20% of committed capital, making fee negotiation important for LPs.
Formula
Annual Management Fee = Fee Rate × Commitment (or NAV)Example
A $1B fund charging 2% management fee generates $20M annually for the GP during the investment period.
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