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Management Fee Definition

What is a Management Fee?

A Brief Explanation of a Management Fee | Definition

A management fee is a payment that is paid periodically to an portfolio manager in exchange for management of assets. Typically the fee is a percentage calculated based on the portfolio or fund assets under management. The management fee differs from a performance fee in that the performance of the investments made does not affect the compensation received by a portfolio manager.

In private equity, the management fee normally ranges between 1% to 2% and is based off of the value of the fund at the time of inception. The fee is used to pay for the day to day operations for the private equity firm as well as used as compensation for employees and research of possible investments. As a fund winds down to termination the calculation of the management fee will change as many investments have been realized. Different investors will also be subject to different management fees. Many times investors who have been with a particular private equity firm for many years and throughout many funds will be subject to lower management fees due to loyalty to the firm.

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