PE Management Fees for a Mining Deal

Hi all,

I would like to ask a simple question, suppose a Private Equity Fund raises 100 million from Limited Partners (LPs) and then charges 2% management fees and 20% carried interest how does the 2% annual fees really work?

Scenario (Mining Deal)

Year 1;

100 million raised
2% Management Fees charged
Available Capital for project ; 100 - 2 = 98
Project uses all the 98 Million
Year 2;

Project in operation but not yet generating income
Where does the 2% Management fees come from?

 
Best Response

The 2% is on capital deployed usually. There will also be a capital committed fee that is lower. The 2% management fees can either be called from LPs or deducted from distributions. In your example, the fund could not call anymore capital because it's already hit its cap, so the fees would just accrue as a liability until proceeds come in. Usually a fund will not use all its capital at the same time (like it'll invest 10% at a time or something) and then they'll still have ability to call capital for mgmt fees. Worth noting that many PE funds do not call 100% of capital.

 
  1. PE funds make investments over time, so while the fund may have 100M in committed capital, it may only deploy 10-20M at a time. So after, say, 2 years, the fund may be something like 40M deployed and 60M committed but not yet called.

  2. Most PE funds do not raise funds on a project by project basis - this would mostly apply to fundless sponsors. Most PE firms raise a pool of money, then have x years (usually 5) to deploy it and then another 5 to harvest it.

 

Accusamus ipsum autem recusandae. Quasi tenetur exercitationem aut libero reiciendis. Nostrum quia quas laudantium id blanditiis dolores ullam.

Voluptatum magni libero assumenda qui doloremque voluptatem blanditiis. Nostrum sint doloremque quam eligendi perferendis accusantium ratione itaque. Voluptatibus in et ex odio.

Incidunt aut temporibus itaque natus. Quibusdam minima quo libero veritatis. Ullam in quam reiciendis.

Dicta quia nisi libero eveniet sunt et nisi. Et laboriosam quam qui praesentium repellendus. Enim sequi autem laudantium quia voluptatibus.

Career Advancement Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Warburg Pincus 99.0%
  • Blackstone Group 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

March 2024 Private Equity

  • Principal (9) $653
  • Director/MD (21) $586
  • Vice President (92) $362
  • 3rd+ Year Associate (89) $280
  • 2nd Year Associate (204) $268
  • 1st Year Associate (386) $229
  • 3rd+ Year Analyst (28) $157
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (313) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
Secyh62's picture
Secyh62
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
DrApeman's picture
DrApeman
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
kanon's picture
kanon
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”