I am having trouble writing documents for a Private Equity Fund and would like some opinions on the following regarding management fees and how they are typically charged and how it is written into the PPM. Assuming an LP has committed $10M to my PE Fund and there is a 2% management fee on capital invested. Question 1) Is it typical to assume I have $10M to invest and that the LP will have to pay the $200K in addition? or is it typical to assume I have $9.8M to invest and that I will call the whole $200K as payment. I believe I have the answer to that and it is I immediately call the 2% plus the capital I call for the the investment so if on Month 5 I find an investment of $5M I would call $5.1M and only have $4.8M+$0.1M left to call. 2)Question 2) In any case things get even crazier when I finally deploy the whole $10M. What do I do for next years management fee? Do I make a capital call for it? Are the LP's expected to pay this above the $10M committed? Should I have taken out more capital and a lot it to several years of Management Fees at when I made the first capital call?
What is typical and how is this incorporated into the PPM?
Hope someone can see the mess I'm in?
This is a legal question, ask lawyers.
Not a lawyer, this is my answer to the best of my limited knowledge.
Closer to the latter but remember that mgmt fee is recurring each year
Most PE funds are not fully called, capital calls come over time, so at any given point you usually have some ability to call capital. If you are 100% called, you can accrue mgmt fees as a liability that will get netted out of proceeds when you make exits.
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