An Overview of Common Private Equity Fees

Possessing more than a decade of financial experience, Kate Merli serves as the CFO of New 2nd Capital, a private equity fund based in New York City. Over the course of her career, Kate Merli has gained extensive experience in private equity fund matters.

Private equity funds, investment vehicles composed of investors and the funds they are investing in private companies, have two common fees: management fees and performance fees. Management fees are collected to cover the operating expenses of a private equity firm. These fees ensure that fund managers are compensated for their time and expertise. 

While the exact structure of a management fee depends on each fund’s needs, the average fee is 1.5 percent to 2 percent of the total asset amount. Management fees are assessed regardless of how investments in the fund perform.

Conversely, the performance fee is directly affected by how private equity funds perform. If the fund experiences only losses, performance fees are not charged that year. Many private equity funds adhere to the “2 and 20” fee rule in which a 2-percent management fee and a 20-percent performance fee are charged on the fund’s asset value and profits each year.