Management Fee
A management fee is the recurring fee paid to a fund manager, typically calculated as a percentage of committed or invested capital.
Definition
Management fees compensate the GP for operating the firm and managing the fund. Fee bases vary by strategy and fund life stage—committed capital during the investment period and invested capital or NAV thereafter are common structures. Management fees are evaluated in the context of services provided, operational infrastructure, and total fee burden to LPs. Allocator Context Allocators assess fees relative to strategy complexity, expected net returns, peer norms, and the availability of substitute exposures. Fee sensitivity increases when fee layering exists (e.g., Fund of Funds), or when expected alpha is modest. Decision Authority Fee approvals may be governed by policy guidelines and often influence IC decisions. Exceptions (higher-than-standard fees, unusual fee bases) can require escalation or enhanced justification. Why It Matters for Fundraising Managers should articulate fee rationale clearly and avoid surprises. Transparent, standard fee structures reduce friction. If fees are premium, managers must explain what operational and investment advantages justify them. Key Takeaways Management fee covers operating costs and platform Fee base and step-downs matter Peer comparisons influence approval Transparency prevents late-stage objections