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