We’re using the full $950M here to simplify the math and avoid creating a spreadsheet for this scenario. In most cases, the management fee is charged on a smaller portion of this. There are other variations as well, including cases where the fee scales down over time as the fund’s investing activity decreases. The total amount over the life of the fund will still be 2% * capital raised, but it might be higher in the beginning and scale down by Years 5-10 if the fund is no longer doing much new investing by then. The specifics of something like this calculation do not matter if your goal is to win an entry-level PE role.

I had a question on the carried interest example you provided. Does the 2% management fee come into play in that calculation? I would assume that over the 5 years, the firm is charging the LP’s 2% on the $950M, or as you stated earlier, on the amount of the $950M that is invested. However, in your example, the calculations are on the full $950M.

I’m just trying to understand the flow of money from the moment it enters the fund to the time it is disbursed to the partners.

Thanks in advance!

These are for front-office investing roles, not tax, audit, or middle/back office. Those are all much lower.

Yes, but distributions take place over time and may be subject to clawbacks and other provisions if some of the invested funds do poorly.

Thanks for adding that. Yes, the description in this article is not accurate currently. I will make a note to update it when we publish a new version.

Hi Brian,
I’ve worked as a PE LP for 5 years and have reviewed a large number of LPAs/Fund terms. To date I have never seen such a structure where the GP commit is treated as first-loss capital. It is nearly always put into an adjacent vehicle next to the fund in which the LPs participate, also to avoid paying the 2/20% fees (it would be a rather tax-inefficient exercise otherwise), and will invest pro-rata into each portfolio company as if it were one investment. On that basis you would typically not see the GP commitment when looking at the fund reporting, less how it would impact first loss capital. The only exception would be GP commitments that are very sizable and from e.g. a retired partner (Bain would be a good example here) where the individual is treated as an LP, but again no talk of first-loss capital.

The GPs and LPs are treated separately. If you count the GPs as part of the LPs due to their small contribution in the beginning, yes, in theory, they would not lose millions in this case just because the fund did not meet its hurdle rate. But the treatment varies and not all funds are set up like that.