Private debt fund managers typically charge the following fees:
1. **Management fees**: Private debt fund managers charge an annual management fee, which is typically a percentage of the committed capital of the fund. According to Investopedia, private equity firms normally charge annual management fees of around 2% of the committed capital of the fund[1]. However, management fees for private debt funds can vary depending on the fund manager, strategy, and investor base. For example, in a 2023 fee survey of investment management services for middle-market corporate lending, Cliffwater found that total fees for private partnerships averaged 3.14% [5].
2. **Performance fees**: Private debt fund managers also charge a performance fee, which is typically a percentage of the profits generated by the fund’s investments. This fee is usually in the region of 20% of profits from investments, and it is referred to as carried interest in the world of private investment funds[1]. However, like management fees, performance fees can vary depending on the fund manager, strategy, and investor base.
3. **Upfront fees**: In addition to management and performance fees, private debt funds may also negotiate upfront fees with investors[4]. These fees can vary depending on the fund manager and investor base.
It’s worth noting that private debt fund fees can be complex and may include other expenses, such as administrative expenses and expenses related to leverage. Additionally, fees can vary depending on the vintage year of the fund. According to Preqin, average management fees for private debt funds are at their lowest point across the last 10 vintage years, with the median for vintage 2017 funds at 1.50% [6].
Citations:
[1] https://www.investopedia.com/articles/investing/072115/private-equity-management-fees-regulation.asp
[2] https://cliffwater.com/files/cliffwaterfunds/data/pdfs/PrivateFundFeesExpensesForDirectLending2022.pdf
[3] https://www.callan.com/blog-archive/private-credit-fees-2023/
[4] https://www.afr.com/companies/financial-services/private-debt-funds-boom-but-upfront-fees-divide-investors-20230306-p5cpq4
[5] https://www.kitces.com/blog/private-debt-funds-returns-general-partners-fees-strategies-performance-risk/
[6] https://docs.preqin.com/newsletters/pd/Preqin-Private-Debt-Spotlight-December-2017-Management-Fees.pdf