CFA Level I · CFA Level I Exam · Alternative Investment Features, Methods, and Structures
A private equity fund charges a management fee of 2% per year. Which of the following bases is most likely used to calculate the management fee during the fund's investment period?
Committed capital is the most likely base. Private equity general partners usually earn management fees on the total capital limited partners have pledged, not on drawn or invested amounts, which gives a predictable fee stream while the fund is still calling capital and making investments.
- ANet asset value after carried interest
- BCommitted capitalCorrect
- CRealized profits of the fund
Explanation
During the investment period, private equity management fees are typically charged on committed capital, because the general partner needs a stable fee while capital is still being drawn down. Fees on realized profits would be an incentive fee, not a management fee. Net asset value after carried interest is not the usual base.
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