Hey Folks - for those of you in direct lending utilizing leverage facilities, is your management fee for a fund based on total AUM outstanding in deals or simply the amount of LP's capital that is currently outstanding? I believe it would be the latter but modeling out a leveraged senior fund and its an important assumption.
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I realize this isn’t particularly helpful, but both structures exist. I would say LP contributed capital is becoming the more common fee structure these days, though.
For my fund at least, it's based off called LP capital, not total deployed capital - i.e. we don't receive mgmt. fees on our leverage facilities.
On one hand, this makes sense because leverage facilities should be a returns enhancer and not a negative to the LPs.
On the other hand, it can create misalignment of interest toward the start of a new fund as the GP can be incentivized to call LP capital earlier instead of maxing out leverage facility draws. This allows the GP to maximize management fees and should be MOIC neutral, but hurts LP IRRs since their capital is called earlier rather than later.
“It depends”
We charged 1.50% on equity and 1.00% on assets (inclusive of leverage) in funds we’ve recently raised.
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