Private equity fee calculator

Private equity funds charge fees in two parts: an annual management fee on committed capital, and carried interest on profits above a hurdle. The standard "2 and 20" is a 2% management fee and a 20% carry above an 8% hurdle. The structure has been dominant in PE for 40 years and is the single biggest driver of the gap between gross fund returns and what LPs actually take home.

This calculator runs the math. Pick your assumptions on the left. The right side shows total fees paid, what the GP takes home, and what the LP nets after fees.

If you want the explainer rather than the math, the longer piece is at two and twenty.

Private equity fee calculator — 2-and-20 model

Fund size ($M committed)

Management fee (%)

Carry (%)

Hurdle rate (%)

Fund life (years)

Target gross MOIC (x)

LP net IRR (after all fees)

—

Gross fund IRR—

Fee drag (gross − net IRR)—

LP net MOIC—

Total mgmt fees paid—

GP carry earned—

Total GP take (fees + carry)—

LP capital back

LP preferred return

LP share of excess

GP carry

Mgmt fees

Assumes European-style (whole-fund) waterfall, mgmt fee charged on committed capital for full fund life, single bullet exit at year N, 100% GP catch-up after hurdle. Real funds use step-downs, deal-by-deal carry variants, and clawbacks — this calculator gives the headline shape, not a deal-quality answer.

What the inputs mean

Fund size. Total committed capital. The number LPs have pledged to the fund; not the same as invested capital, which is usually 70–90% of committed by year 5.

Management fee. Annual fee charged by the GP, almost always on committed capital during the investment period and on net asset value during the harvest period. The "2 and 20" headline is 2%; large funds (over $5B) now negotiate down to 1.25–1.75%. Some funds also step down after year 5 or 6.

Carry. GP share of profits above the hurdle. The "20" in "2 and 20." Top-tier funds sometimes negotiate 25–30% carry; emerging managers often start at 20% with a longer catch-up.

Hurdle rate. Annual preferred return LPs get on their capital before the GP earns any carry. Standard PE is 8%, compounded annually. Venture funds often have no hurdle.

Fund life. Total years from first close to final wind-down. Standard is 10 years with optional 1–2 year extensions. The model assumes a single exit at year N; real funds exit progressively.

Target gross MOIC. What you assume the fund returns on a gross basis before fees and carry. PE target gross is typically 2.0–2.5x; this is where the math gets dramatic.

What the outputs mean

LP net IRR. The annualized return LPs actually receive after all fees and carry. This is the number that matters.

Fee drag. Gross fund IRR minus LP net IRR. For 2-and-20 at typical 2x gross MOIC over 10 years, fee drag is usually 4–6 percentage points. That's the price LPs pay for outsourcing private-market access.

LP net MOIC. Multiple of committed capital after fees. For a 2x gross MOIC fund, LPs typically net 1.5–1.6x.

Total mgmt fees paid. What LPs pay the GP for operating the fund, regardless of performance. Even a fund that loses money pays full mgmt fees.

GP carry earned. The performance-based portion of GP comp. Zero if the fund doesn't clear the hurdle.

What the breakdown bar shows

The bar shows where every dollar of gross proceeds and mgmt fees ends up:

LP capital back (always 100% of committed)
LP preferred return (the hurdle, if achieved)
LP share of excess (after the GP catches up, LPs get 80% of remainder)
GP carry (the 20% catch-up plus 20% of remainder)
Mgmt fees (paid annually regardless of performance)

Frequently asked questions

How does the 2-and-20 fee structure work?

PE funds charge LPs in two parts. The 2% is an annual management fee on committed capital, paid every year for the fund's life regardless of performance. The 20% is carried interest — the GP's share of profits above an 8% hurdle. Together they're the dominant compensation structure for buyout, growth, and venture funds. For the long-form explainer, see two and twenty.

What is the hurdle rate in PE?

The hurdle is the annual preferred return LPs earn on their capital before the GP gets any carry. Standard is 8% compounded annually. If the fund doesn't beat 8%, the GP earns zero carry. If it beats 8%, the GP typically catches up to their 20% share and then everything above splits 80/20.

What is fee drag and why does it matter?

Fee drag is the gap between gross fund returns and what LPs actually take home after all fees. For a 2-and-20 fund returning 2x gross over 10 years, fee drag is typically 4–6 percentage points of IRR. It's the single biggest number in PE due diligence that LPs care about and PE marketing decks downplay.

How do you calculate LP net IRR in private equity?

LP net IRR is the annualized return LPs receive after subtracting management fees and GP carry from gross proceeds, divided by their committed capital, raised to (1 / fund life). The calculator above does this directly. As a shortcut: net IRR is typically gross IRR minus 4–6 percentage points for typical 2-and-20 funds.

Why do GPs get carry on profits but not on losses?

Asymmetric upside is the structural feature LPs accept in exchange for outsourcing private-market underwriting. The GP risks operating costs (and most firms invest 1–5% of fund size as GP commitment), but the carry is a one-way option on fund performance. This is the structural reason PE comp scales the way it does — see private equity compensation.