A management fee is the recurring amount a fund's limited partners pay its general partner or manager to cover the cost of running the fund — salaries, overhead, deal sourcing — separate from the carried interest the GP only earns on profit.
No Canadian statute or regulator sets a management fee rate. It is a negotiated term of the fund’s own limited partnership agreement, and the CVCA publishes a Canadianized ILPA Limited Partnership Agreement, Subscription Agreement and Term Sheet that many Canadian venture and private equity funds use as the starting point for drafting that agreement — the CVCA describes itself as representing over 340 member firms and 2,600 industry leaders across the country. The fee is almost always calculated on a defined base, and the base is where the drafting choice actually sits: during the fund’s investment period, it is customarily charged on committed capital — the full amount LPs promised, whether or not it has been called yet. Once the investment period ends and the GP stops making new platform investments, the base commonly rebases to invested capital or net asset value, because a fee still charged on capital no longer being actively deployed pays the manager for standing still. Some LPAs also carry a “fee offset” term, under which transaction, monitoring or break fees the GP collects directly from portfolio companies are credited back against the management fee rather than kept on top of it — the effect is to stop the same pool of capital being charged twice for the GP’s work.
Fund II closes at $60 million of committed capital with a five-year investment period. For those five years its LPA charges the fee on the full $60 million, whether or not it has been called down. In year six, the investment period ends and the fee base rebases to invested capital. By then two early platform investments have already been sold and their proceeds returned to LPs, so only $45 million remains invested in the portfolio. From year six on, the GP is paid on that $45 million, not on the $60 million originally committed and not on the capital LPs have already gotten back.
Preferred return · Secondary sale of a fund interest · Cutting the turnaround time on quarterly LP reports.
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