Management Fee
A management fee is the ongoing fee paid to the GP/manager to operate the fund, typically charged as a percentage of committed or invested capital.
Allocator relevance: A major driver of fee drag and net returns—fee basis and step-down mechanics often matter more than headline rate.
Expanded Definition
Management fees fund operations: staff, sourcing, overhead, and platform costs. Fees can be charged on committed capital (common early), invested capital, or NAV. The basis often changes over time (step-down after investment period). Fees may also interact with offsets and expense definitions.
Allocators evaluate management fees in the full context of net economics: carry, expenses, fee offsets, and expected deployment pace.
How It Works in Practice
Fees are charged quarterly (often in advance) according to the LPA. During the investment period, fees are frequently on committed capital; later, on invested capital or NAV with step-downs. Side letters can modify fee levels for specific LPs.
Decision Authority and Governance
Governance includes fee disclosure, expense controls, audits, and enforcing offsets. LPAC may be involved in approving certain expenses or conflict-related fees.
Common Misconceptions
- A “2% fee” means the same thing across funds.
- Fees are negligible compared to returns.
- Fee offsets automatically protect LPs.
Key Takeaways
- Fee basis, step-downs, and expenses drive real fee burden.
- Model fees under realistic deployment scenarios.
- Transparency and enforceability matter.