What is a PE fee?

The limited partnership structure fosters collaboration and trust between the GPs and LPs. By incorporating these fees into the agreement, both parties have a clear understanding of their respective roles, responsibilities, and potential rewards.

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Private equity fees are intricately tied to the foundational structure of private equity investments, specifically the limited partnership model. This framework establishes a unique relationship between two key parties: the general partners (GPs) and limited partners (LPs).

The GPs, as the managing entity, are responsible for overseeing the investment process and implementing strategies. In exchange for their expertise and efforts, they levy a management fee. This fee is intended to cover operational costs incurred during the management of the investment portfolio.

Additionally, GPs charge a performance fee, which serves as an incentive to align their interests with those of the LPs. The performance fee is typically a percentage of the profits generated by the investment, ensuring that the GPs' success is directly tied to the success of the fund.