- GP Commitment
- Carried Interest Overview
- Carried Interest – Preferred Return and GP Catchup
- GP Clawback
- Management Fee Offsets
- Key Person Clauses
- No Fault Divorce
- For Cause Actions
- Should Venture Capital Funds have a Preferred Return Hurdle?
In private equity, the term “2 and 20” refers to the traditional compensation structure for private equity funds: 2% management fee and 20% performance fee (also known as “carried interest” or “carry”).
In this post, we will explore management fee.
Historically, management fee was intended to provide fund managers with enough money to pay modest salaries, rent modest offices and incur modest expenses. It was said that management fee was intended to let the fund manager “keep the lights on” and that the performance fee (known as “carried interest” or “carry”) was where the fund manager made its money. While investors in private equity funds (known as “limited partners” or “LPs”) continue to take this view, terms in fund documents (known as the "limited partnership agreement" or "LPA") relating to management fee have become more complex.
Let’s dig in.
In previous posts, we have explored committed capital and the investment period:
- LP Corner: On Committed Capital, Called Capital and Uncalled Capital
- LP Corner: the Four Phases in the Life of a Private Equity Fund
- LP Corner: Private Equity Cash Flows from the LP Perspective
We will look at management fee in three phases of a fund’s life: the investment period, the harvesting (or realization) period and during extensions.
To read more, please click on the "Read More" link below and to the right.