Introduction to Private Equity Fees

Private Equity firms often have two-tiered fee structures, based on assets and performance​​. This is similar to hedge funds.

When it comes to private equity fee structure, it is rather complicated, although it is similar to hedge fund fees. First, there are management fees with a typical range of 1-2% based on invested capital. Then, there is carried interest, which is a performance-based fee only paid if a minimum return (hurdle rate) is generated. In many ways it is similar to hedge fund performance-based fees. 

Private equity investments are considered to be an investment into an alternative asset class, and a way to diversify. And like with hedge funds, investments are locked for years. So, if you decide to invest in these funds, keep that in mind.

Currently, it is estimated that private equity firms have about $3 trillion dollars invested, with a great majority of these funds based in the United States. These are investment vehicles for the wealthy. Small sums like $1,000 (which are acceptable when opening a mutual fund account) are not accepted. Much higher investments are required.

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The  more money a private equity fund makes, the higher the fees