Fee Math for People Who Hate Math

Fund1 Frank here.

Let’s talk about a spicy little topic that could make or break your fund economics (and your soul): Fees.

The “2 and 20” myth is alive and well, but here’s the thing — most emerging managers aren’t charging enough to build a sustainable business, let alone hire that second intern who knows how to spell “portfolio construction.”

Too many first-time GPs price their fund like a SaaS freemium trial. You're not Mailchimp. You're managing millions.

Let’s fix that.

🧮 The Fee Formula Basics

📌 Management Fee (aka: your only income for the next 5 years)

• Standard: 2% annually on committed capital.

• Reality for EFMs: Often ends up between 1.5–2.5% depending on LP pushback.

• Pro tip: Depending on your fund size, it might make sense to charge higher fees early (on committed) that step down once deployed.

📌 Carry (aka: your actual upside, hopefully)

• Standard: 20% on profits after returning LP capital.

• You might see:

  • <20% for less tenured GPs but almost never higher than 20%

  • Hurdles of 6–10% IRR

  • Catch-up structures

👉 Don't forget to thoroughly research:

• Preferred return (is there one?)

• Catch-up mechanics (does it fully favor GP or split?)

• Clawbacks (ugh)

⚠️ Common Fee Mistakes

1. Not budgeting your own life into the model.
   If your fees don’t cover a basic salary + ops budget, you're self-funding your LPs’ upside.

2. Trying to "win" on fees.
   LPs investing because you’re “cheaper” are not the LPs you want long-term.

3. Using a boilerplate model without modeling reality.
   Do the work. Build a real 10-year budget with hires, tools, tax, legal, and coffee included.

4. Not accounting for tools + technology, audit, tax, legal, and fund admin bloat.
   Spoiler: It’s never just $50K a year. That $7K “one-time” Delaware filing? It’s annual now.

5. Not understanding who covers which costs.

   There are costs that LPs will cover over and above what’s paid from the 2% management fee. Each LPA is different so make sure you understand what’s going to eat into the management fee and what isn’t. For example, for many funds LPs will cover the bulk of the start-up costs (e.g., fund formation). Talk to your lawyer to figure out what’s market!

📊 Sample Fee Model Template

Want to skip Excel rage-typing?
Grab the ILPA Fee Model template — a plug-and-play spreadsheet that breaks down how fees flow over time and what’s left for you after real-world expenses.

🧠 TL;DR

• You are allowed to get paid.

• Fund modeling isn’t a vibes-based exercise.

• Price like a professional — because you are one.

Till next time,
— Fund1 Frank
Back-to-back Zooms with people who ‘love the strategy but are passing’.