CFA Level I · CFA Level I Exam · Alternative Investment Features, Methods, and Structures
In a private equity fund, the management fee is most likely charged on:
The management fee is most likely charged on committed or invested capital, whatever the fund's performance. It pays for running the fund. Profit-based charges above a hurdle rate are performance fees or carried interest, which are separate from the management fee.
- Athe fund's realized profits only, after the hurdle rate is met
- Bcommitted capital or invested capital, regardless of fund performanceCorrect
- Cthe carried interest earned by the general partner in each year
Explanation
Management fees are a recurring charge, usually a percentage of committed or invested capital (or of net asset value for some funds), and are paid regardless of performance. Fees based on profits above a hurdle describe performance fees, not management fees.
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