Management fee

A fee charged as a percentage of committed or invested capital, or of assets, whatever the returns. It pays for running the fund, and a large one can reward gathering assets more than performing.

Where you will meet it

Management fee appears in 6 learning outcomes on the CFA syllabus. A few of them:

• Contrast gross with net, pre-tax with after-tax, and real with nominal returns
  CFA Level I · Quantitative Methods

  “Gross return is before management fees and costs; net return is after them.”

• Set out the main types of alternative investment
  CFA Level I · Alternative Investments

  “They share features that distinguish them from public stocks and bonds: lower liquidity, longer horizons, less regulation and disclosure, and higher fee structures often combining a management fee with performance fees.”

• Set out what an ETF costs to hold
  CFA Level II · Portfolio Construction

  “The management fee, or expense ratio, is charged continuously out of fund assets, so its drag grows with the holding period.”

• Explain the mechanisms that tie a private manager's incentives to its investors' interests, and work out and assess the net returns limited partners keep after management fees and carried interest
  CFA Level III · Private Markets Pathway

  “Management fees are usually charged on committed capital during the investment period and on invested capital or NAV afterwards.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with M · Glossary