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A Management fee is a periodic payment that is paid by investors in a pooled investment fund to the fund's investment adviser for investment and portfolio management services.

Contents

Mutual funds

In a mutual fund, the management fee will include any fees payable to the fund's investment adviser or its affiliates, and administrative fees payable to the investment adviser that are not included in the "Other Expenses" category).[1]

Private equity funds

In a private equity fund, the management fee is an annual payment made by the limited partners in the fund to the fund's manager (e.g., the private equity firm) to pay for the private equity firm's investment operations.[2].

Often the management fee is initially based on the total investor commitments to the fund (i.e., the fund size) as investments are made. After the end of the commitment period, ordinarily 4-6 years, the basis for calculating the fee will change to the cost basis of the fund, less any investments that have been realized or written-off.

Management fees rates will range from 1.0% to 2.0% per annum during the initial commitment period and will then often step down by 0.5% - 1.0% from the original rate through the termination of the fund.

Typically, the managers will also receive an incentive fee based on the performance of the fund, known as the carried interest.

Hedge funds

In a hedge fund, the management fee is calculated as a percentage of the fund's net asset value (the total of the investors' capital accounts) at the time when the fee becomes payable. Management fees typically range from 1% to 4% per annum, with 2% being the standard figure. Therefore, if a fund has $1 billion of assets at year-end and charges a 2% management fee, the management fee will be $20 million. Management fees are usually expressed as an annual percentage but both calculated and paid monthly (or sometimes quarterly or weekly) at annualized rates.

See also

References

  1. ^ SEC.gov. They are also called maintenance fees.
  2. ^ Private equity industry dictionary. CalPERS Alternative Investment Program
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