FRM Part I · FRM Exam Part I · Fund Management
A private equity fund has committed capital of $200 million. The partnership agreement sets a 2% annual management fee on committed capital during the investment period. What is the annual management fee in dollars?
The annual management fee is $4 million, because the fee is 2% of committed capital of $200 million. Private equity fees during the investment period are usually charged on commitments rather than on invested capital, so the calculation does not depend on how much has been drawn down.
- A$2 million
- B$4 millionCorrect
- C$8 million
- D$40 million
Explanation
Fee = 2% x $200 million = $4 million per year. $2 million would use 1%. $8 million would use 4%. $40 million would be 20%, which is the typical carried interest rate, not the management fee rate.
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