Happy Friday, Funds Family!

Last week, we kicked off our first ✅ State of the Market series by looking at market sentiment, LP check size trends, and allocation priorities.

In Part 2, we’re focusing on how GPs are structuring management fees, including rate trends, fee bases, and post-investment period adjustments.

Let’s dive into what the data says 👇

⚙️ Fee Structure: Most Funds Keep it Simple

We asked GPs whether they maintain the same management fee structure throughout the life of the fund, or change the management fee rate or base after the investment period.

Here’s what they said:

• 68% of GPs keep the same structure throughout the life of the fund

• 32% use a tiered structure, where the rate and/or base changes post-investment period

💡 Uniform fee structures remain the norm, but nearly a third of GPs have adopted a two-phase approach, which is often influenced by the asset class and fund strategy.

📝 Note: It’s somewhat unusual that so many funds reported keeping the same management fee structure throughout the life of the fund. Most institutional funds shift the fee rate or base after the investment period.

We're not entirely sure why the data skewed this way, but it may be because a number of respondents were syndications where it's more common to keep the same fee structure throughout.

💵 Management Fee Rate: Most Stay in the 2% Ballpark

For GPs that keep the same fee structure throughout the life of the fund, the majority stick to familiar territory:

• 64% charge between 1.5% and 2%

• 20% charge less than 1%

• 16% fall in the 1% to 1.5% range

💡 The traditional 2-and-20 model is still alive and well. That said, a meaningful minority are setting lower fees, possibly to stay competitive with LP expectations.

📊 Fee Base: Invested Capital Leads

For GPs that keep the same fee structure throughout the life of the fund, we asked: What base are you applying the management fee to?

Here’s how it broke down:

• 40% use invested capital

• 22% use committed capital

• 16% use net asset value (NAV)

• 11% charge no management fee

• 7% use effective gross income

• 2% (primarily independent sponsors) base fees on EBITDA

• 2% use a flat fee

💡 Among managers using a flat fee structure over the life of the fund, invested capital is the most common base.

That said, the range of responses reflects differences across asset classes.

For example: (i) venture capital funds typically have management fees based on commitments for the whole life of the fund, but the percentage steps down; (ii) private equity and real estate funds typically have management fees based on committed capital for the investment period and invested capital thereafter, with the percentage staying the same for the whole life of the fund; and (iii) open-ended funds often have fees based on net asset value or another similar measure.

💰 Initial Fee Rates: Higher During the Investment Period

Among GPs that adjust their management fee structure over time—typically by lowering the rate or changing the fee base post-investment period—we saw a clear pattern: many start at a higher rate during the investment phase.

• 58% charge an initial fee between 1.5% and 2%

• 35% start with a rate above 2%

• Only 8% start below 1.5%

💡 Tiered fee structures tend to front-load compensation, likely reflecting early fund setup costs, active deal flow, and the resource intensity of the investment period. LPs may be more comfortable with higher upfront fees if they know those fees step down once the capital is deployed.

🧮 Fee Base Shift: From Committed to Invested

For GPs using tiered fee structures, we asked what base they use for calculating management fees at different phases of the fund lifecycle—during the investment period and after it ends.

Initial Base (During Investment Period):

• 88% use committed capital

• 8% use invested capital

• 4% use effective gross income

Final Base (Post-Investment Period):

• 54% shift to invested capital

• 35% stick with committed capital

• 8% move to net asset value (NAV)

• 4% use fair value of investments

💡 For managers with fee structures that change throughout the life of the fund, committed capital dominates early, but over half of respondents use invested capital once the fund is fully deployed.

🧾 Final Fee Rates: Some Step Down, Most Stay Steady

For GPs that adjust their management fees over time, we asked what rate they use after the investment period ends.

Here's what they told us:

• 62% maintain a final rate between 1.5% and 2%

• 27% reduce the rate to between 1% and 1.5%

• 8% continue charging more than 2%

• 4% step all the way down to less than 1%

💡 While some GPs step down to lower rates over time, most still end up in the 1.5%–2% range, even post-deployment.

🦁 What We’re Seeing in the Wild

Across funds we’ve helped form over the past year, one thing is clear: 2% is still the default management fee rate. In fact, over 70% of the funds we’ve worked on landed in the 2% range.

In our experience, management fees based on LP commitments remain the default (at least during the investment period).

There are a few nuances based on asset class:

• Real estate funds generally initially charge 1.5–2% of commitments (and then 1.5–2% of invested capital after the investment period)

• Private equity and private credit funds typically charge 2% of commitments during the investment period (shifting to invested capital thereafter)

• Venture funds start at 2% of commitments during the investment period before stepping down to 1.5% of commitments thereafter

• Hedge funds (and other open-ended funds) typically charge 1–2% of NAV

• Fund of funds usually charge about half of what direct funds in the applicable asset class would charge

Thanks for reading, everyone.

Have a great weekend! 🙌 

⚠️ Note: This newsletter is for informational purposes only and nothing should be considered legal advice. For that, hire a lawyer! I am a lawyer, but not your lawyer (unless I actually am your lawyer because you’ve signed an engagement letter and we’re working together). This newsletter may be considered attorney advertising.