What is a Typical Fee Structure for a Private Investment Fund?

Traditionally, hedge funds charge fees to investors based on a “2 and 20” formula: an annualized 2% management fee which is paid monthly or quarterly based on assets under management and a 20% annual performance or incentive reallocation based on net fund profits. Similarly managers of private equity funds generally charge an annualized 2% management fee based on committed capital and receive a 20% carried interest as incentive compensation. Recently in some circumstances, particularly for new fund managers, fees may be negotiated somewhat in order to induce seed investors at the time of fund formation. We also have experience in several alternative fee arrangements including, but not limited to, incentive hurdles & triggers, clawbacks and modified highwater marks. We work with new funds to determine the most advantageous fee structure, taking into account management goals as well as the competitive market for investors.

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