Private equity fees and carried interest

Private equity managers are paid two ways: a management fee to run the firm and carried interest, a share of profits. The details sit in the limited partnership agreement.

Management fee

• Commonly about 1.5% to 2% a year, charged on committed capital during the investment period, so you pay from day one even before your money is called.
• After the investment period it usually steps down, or switches to invested capital (what is still in deals).
• Larger funds and anchor investors often pay less.

Carried interest

• Typically 20% of profits, paid to the general partner.
• Usually only after investors receive a preferred return (the hurdle), commonly 8% a year.
• A catch-up then gives the manager a larger share of the next profits until it has received its full 20% of total profits.

Waterfalls

• European (whole-fund): investors get all their contributed capital back plus the preferred return before any carry is paid. Friendlier to investors.
• American (deal-by-deal): carry can be paid on each profitable exit. Usually paired with a clawback so the manager returns excess carry if later deals lose money.

Other costs

Funds also pass through organizational expenses and fund expenses (legal, audit, administration). Some managers charge portfolio companies transaction and monitoring fees; many agreements offset part or all of these against the management fee. Feeder and access funds add their own fee layer.

Compare with hedge fund fees. Find funds in the private equity directory.

Education, not advice. This guide explains general rules and market practice. It is not legal, tax or investment advice, not an offer or solicitation, and not a recommendation of any fund. Rules change; confirm details with the SEC and a qualified professional. Disclosures