The management fee is the annual charge paid by LPs to the GP to cover the costs of running the fund — staff salaries, deal costs, legal fees, fund administration, and the like. It is typically calculated as a percentage of committed capital during the investment period (commonly four to five years) and then steps down to a percentage of invested capital (or net asset value) during the harvest period.
The most widely cited structure — '2 and 20' — refers to a 2% management fee plus 20% carried interest. Larger funds and successor funds from established managers often negotiate lower fees (1.5% or less) given their economies of scale. Management fees are the GP's fixed income stream irrespective of performance; carried interest is the variable, performance-driven component.