As a new resource to this blog, I will be answering the frequently asked questions that I receive by e-mail each week. Today I am focusing on a term that comes up a lot in private equity compensation and fund terms: private equity management fees. (There are more detailed videos available through the Private Equity Training program we offer).
What is the private equity management fee? A private equity management fee is the fee charged on assets under management. So, if limited partners contribute $100 million to a fund so the general partner is managing $100 million in assets under management (AUM) then the fund will charge typically a 2% fee on these assets. (2% is the industry norm although some more established private equity funds with high demand and a strong track record may charge a higher management fee.) Thus, on that $100 million AUM, the general partner will receive a $2 million management fee that goes toward paying staff, operating expenses and whatever other management costs associated with running the fund. This fee is usually combined with a 20% performance fee that acts as an incentive to achieve high returns.
I hope this explanation of the private equity management fee has helped you better understand this important term. If you have further questions you’d like answered, check out our frequently asked questions page here.
tags: private equity fees, private equity management, private equity management fees, private equity management fee, private equity performance fee, private equity incentive fees, private equity fee structure, private equity fees costs
