Management Fee

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Definition of 'Management Fee'

A management fee is a fee charged by an investment manager to oversee the management of an investment portfolio. The fee is typically a percentage of the assets under management (AUM), and it can range from 0.5% to 2.5%.

Management fees are typically charged on a quarterly or annual basis, and they are deducted from the investment returns before they are distributed to the investors. The fee is used to cover the costs of managing the portfolio, such as research, trading, and administrative expenses.

Management fees are an important part of the cost of investing in a managed portfolio. Investors should be aware of the fees that they are paying, and they should compare the fees charged by different investment managers before making a decision.

There are a few different types of management fees that investors should be aware of. The most common type of management fee is a flat fee, which is a fixed percentage of the AUM. Another type of management fee is a performance-based fee, which is a percentage of the investment returns. Performance-based fees can be either a high-water mark fee or a hurdle rate fee.

A high-water mark fee is a performance-based fee that is only charged on the investment returns that exceed the previous high-water mark. The high-water mark is the highest value of the portfolio since the inception of the investment. A hurdle rate fee is a performance-based fee that is only charged if the investment returns exceed a certain threshold.

Investors should carefully consider the different types of management fees before making a decision about which investment manager to use. The type of management fee that is most appropriate for an investor will depend on their individual circumstances and investment goals.

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