Management Fee

An annual fee charged by fund managers to cover operational expenses, typically 2% of committed capital during the investment period and 2% of invested capital thereafter.

Management fees are annual fees charged by fund managers (General Partners) to Limited Partners to cover the costs of operating the fund.

Standard Fee Structure

"2 and 20"

  • 2% annual management fee
  • 20% carried interest on profits

Fee Calculation Bases

During Investment Period (Years 1-5)

  • Fee based on committed capital
  • Example: $100M fund × 2% = $2M/year

During Harvest Period (Years 6-10)

  • Fee steps down or switches to invested capital
  • Example: $60M invested × 1.5% = $900K/year

What Management Fees Cover

  • GP salaries and bonuses
  • Office and overhead
  • Travel and deal sourcing
  • Legal and accounting
  • Portfolio company support
  • Fund administration

Fee Variations in SMB Funds

Fund TypeTypical Fee
Traditional PE2.0%
Search funds0-2%
Fundless sponsors0% (deal-by-deal)
SMB syndicates0.5-2%

Negotiating Management Fees

LPs may negotiate:

  • Fee step-downs over time
  • Offset of transaction fees
  • Caps on total fees
  • Lower fees for larger commitments

Related Terms

carried interestcommitted capitalgp lp

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