CFA Level I · CFA Level I Exam · Alternative Investment Features, Methods, and Structures
A limited partner commits $10 million to a private equity fund with a 2% management fee charged on committed capital. The fund has drawn down $4 million so far. The management fee for the year, in dollars, is closest to:
The fee is about $200,000. Because the 2% management fee is charged on committed capital of $10 million rather than the $4 million drawn, the calculation is 2% times $10,000,000. Using drawn capital would wrongly give $80,000.
- A80,000
- B200,000Correct
- C280,000
Explanation
Fee on committed capital = 2% × $10,000,000 = $200,000. Using drawn capital ($4 million) gives $80,000, which is the wrong base. $280,000 wrongly adds the two.
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