Management fees are annual commissions paid by a private equity fund's Limited Partners to its General Partners as compensation for fund management services — deal sourcing, portfolio management, reporting and investor relations. They typically amount to 1.5–2.0% of committed capital during the investment period and of invested capital during the harvest period. They are distinct from the carried interest which is performance-driven. In financial due diligence on portfolio companies, management fees charged by the GP to the portfolio company (monitoring fees) are identified as non-arm's length transactions and restatement items in the normalised EBITDA.

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Example: a Swiss private equity fund with CHF 200.0 million committed capital charges 1.8% annual management fees — CHF 3.6 million per year. Over a 10-year fund life (5 years investment + 5 years harvest), total management fees amount to CHF 30.0 million — representing 15% of committed capital, a significant cost that reduces the net return to LPs before any carried interest is applied.

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Hectelion models management fee structures and carried interest waterfalls in fund valuations and performance analyses for institutional investors.