Management Fee
By Nick Bryant, Co-Founder and CTO, SMB Investor Network
1 min read
Definition
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 Type | Typical Fee |
|---|---|
| Traditional PE | 2.0% |
| Search funds | 0-2% |
| Fundless sponsors | 0% (deal-by-deal) |
| SMB syndicates | 0.5-2% |
Negotiating Management Fees
LPs may negotiate:
- Fee step-downs over time
- Offset of transaction fees
- Caps on total fees
- Lower fees for larger commitments