What is management fees calculated upon?

CFA Level II Alternative Investments
#1

Hi,

There is a lot of confusion over the question:

What is management fees calculated upon?

Paid in capital, committed capital or beginning of year NAV?

Regards,

#2

PIC …have u come across anything else in a question

#3

No, the curriculum says PIC too.

Everywhere on the net, it says different things.

I guess we’ll stick with PIC till the exam.

#4

The same here. In some mocks, it was on committed capital, and in others on PIC.

#5

I think it makes sense to use PIC as those are the funds that the equity firm is managing…

#6

At examples, where you see mgmt fee being calculated on committed capital , in that case they might have assumed that all of it had been called and is thus pic.

It is always calculated on paid in capital

#7

I came across a Mock ques where CI is computed not over the committed capital but NAV of previous year when the threshold of committed capital was not crossed. So which one is correct:-

CI = (NAVbefore dist - Committed Capital) * 20% ;or

CI = (NAVbefore dist - NAVbefore dist of previous year) * 20%

#8

Depends on the limited partnership agreement (LPA). There is no hard and fast rule in PE. Aside from this fact, none of the Alternative Investments LOSs indicate we need to calculate management fees, so I wouldn’t worry about it too too much.

#9

Private equity firms charge management fees on committed capital but may reduce this fee in later years when the money has been fully deployed, and the need for active management decreases.

Hedge funds charge on invested capital, or AUM.