Authored By: Scott Siemens and Michael C. Aronstein, Antiquity

In our “Understanding Fees: Beyond the Headlines and into the Footnotes” article, we gave an overview and checklist of the various fees and expenses that are typical in Evergreen funds. In this article we will focus on Management Fees.

Everyone knows the base management fee as the fund’s annual “rent” for professional stewardship, typically a percentage of assets. But in Evergreen funds, the excitement, and the complexity, begins with the fine print on how that percentage is applied.

Calculation Basis: Gross Assets vs. Net Assets

Gross assets include the total value of the fund’s holdings, incorporating leverage such as borrowed funds, which can substantially expand the fee base. Net assets, in contrast, exclude liabilities and expenses for a more direct reflection of investor equity. In many Evergreen funds, particularly BDCs where leverage is often integral, fees are calculated on gross assets to capture the benefits of debt-financed growth. For example, a fund with $100 million in net assets but $20 million in borrowings would apply a 1.5% fee to $120 million gross, resulting in $1.8 million, compared to $1.5 million on net assets alone. While this approach may incentivize strategic use of leverage, investors should evaluate whether it appropriately offsets the added risks or merely inflates ongoing costs without commensurate value.

Typical Rates and Implications

Rates typically range from 0.5% to 2% annually, with variations that warrant careful review, such as tiered scales that decrease as assets under management expand, or fixed rates that remain unchanged regardless of fund size. In semi-liquid Evergreen funds offering periodic redemptions, lower rates may be employed to attract a wider investor base. Investors should assess where the rates position relative to market benchmarks, whether they incorporate sliding scales for economies of scale, and if they align with the level of liquidity and services provided.

Checklist Guidance: Consult the fund’s prospectus to identify the fee basis and any escalations. Compare these details across similar funds to assess competitiveness. The complete checklist can be found here.

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