Management Fee's is charged by the AMC to the LP's (investors) as a fees for managing their fund.
There can be different ways in which the management fees is charged. To understand that, let us first understand the commitment period and post commitment period of the fund life cycle.
The fund life cycle is divided into commitment period and post commitment period.
In most cases, Commitment period is defined as the time before which the AMC is allowed to drawdown money from LP's and invest them. After the post commitment period, no money can be drawn down from LP's and no further investments (disbursements) can be made into any portfolio company. Based on the contribution agreement, small modifications in the handling of these definitions are seen in the case of some funds.
In most common scenarios, AMC charges some percentage of management fees on Capital Commitment during the investment period and later on Capital Contributed or Remaining Invested Capital.
Remaining Invested Capital can have all or few components out of the following-->
Now let us understand with the same set of numbers, how management fees can be charges in commitment as well as post commitment period. Let us assume that the management fees charged is 2% of to total capital commitment during Commitment Period.
There can be different ways in which the management fees is charged. To understand that, let us first understand the commitment period and post commitment period of the fund life cycle.
The fund life cycle is divided into commitment period and post commitment period.
In most cases, Commitment period is defined as the time before which the AMC is allowed to drawdown money from LP's and invest them. After the post commitment period, no money can be drawn down from LP's and no further investments (disbursements) can be made into any portfolio company. Based on the contribution agreement, small modifications in the handling of these definitions are seen in the case of some funds.
In most common scenarios, AMC charges some percentage of management fees on Capital Commitment during the investment period and later on Capital Contributed or Remaining Invested Capital.
Remaining Invested Capital can have all or few components out of the following-->
- Invested amounts to portfolio companies
- Deal Expenses incurred towards portfolio companies
- Indirect fund expenses incurred
- Management fees charged to the fund
- Cash balance if any
Now let us understand with the same set of numbers, how management fees can be charges in commitment as well as post commitment period. Let us assume that the management fees charged is 2% of to total capital commitment during Commitment Period.
Management Fees (2%) charged during Commitment Period on total Capital Commitment
CC
|
Management Fees (2%)
| |
LP 1
|
10
|
0.2
|
LP 2
|
20
|
0.4
|
LP 3
|
30
|
0.6
|
LP 4
|
25
|
0.5
|
LP 5
|
15
|
0.3
|
100
|
This is the annual management fees taken from each LP. In most cases, the AMC charges management fees on a quarterly basis in advance, at the start of every quarter.
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