Scale#It is a Knowledge and Competency resource for entrepreneurs to strengthen governance and investors to fuel their knowledge of this asset class. This platform is under construction. Click on this banner to sign-up to be informed of new articles as they are released.

How is a Private Equity fund manager remunerated?
Play Video

How is a Private Equity fund manager remunerated?

Published on 18/08/2022
Contributor(s): Harold Grosfils

There are several types of fees in a Private Equity Fund. The 2 most common fees are the management fee and the carried interest.

What is the Management Fee for a Venture Capital/Private Equity Fund?

The management fee is a fixed fee paid annually by the investor to the fund managers to cover operating costs.

What is Carried Interest for a Venture Capital/Private Equity Fund?

The carried interest is a performance bonus attributed to the fund manager if the fund’s Net Performance (measured as IRR (Internal Rate of Return)) has reached a certain level of return; the so-called Hurdle Rate.

For example, a fund typically levies 20% carried interest with a 8% hurdle rate means that 20% of the profits above 8% are remuneration for the manager. If the fund’s Gross Performance is below the hurdle rate, no carried interest is charged. TheClubDeal Fund II levies 15% Carried Interest above a 6% Hurdle Rate, as presented by Harold in the video.

To ensure the Net Return is not lower than a Gross Return above the Hurdle Rate, the performance up to the Hurdle Rate is remunerated with a separate mechanism called the Catch-up Rate. It can be identical or different to the Carried Interest and is also only levied if the Gross Return is above the Hurdle Rate.

In the case of TheClubDeal fund II SA the Catch-up Rate is identical to the Carried Interest at 15%. This means that if the Gross Fund Performance is above the Hurdle Rate, for example 12%, 15% of the 12% Gross Performance will be attributed to the fund manager as a Performance-based Remuneration.

These performance fees are seen as a strong incentive for the fund manager to deliver performance, allowing for maximum alignment of interest between investors and the fund manager, who will do everything possible to achieve the best possible return.

Other videos for Entrepreneurs and Investors

Other articles by Harold Grosfils

Contact us

I am an entrepreneur

...and I want to scale up!

We can help finance your venture

Learn how

I am an investor

TheClubDeal Fund II still accepts commitments

See what TheClubDeal can offer

Learn More

Subscribe to our Newsletter

We seek to customise the content to the segments we serve.

These are both fund investors and the entrepreneurs with whom we have created alliances.

We are happy to keep in touch.

TCD Form Template Style

Subscribe to Scale#It

We are currently building the portfolio of resources to scale ventures with resilient governance.

This newsletter allows you to be kept informed of the new articles published by TheClubDeal.

Scalastra Signup