Management fee is an annual fee that is charged to investors regardless of the level of return for a particular asset. This fee is a standard cost that money managers charge for managing investor capital.
The costs associated with management include administration, investor relations, and professional management. Fees can be accrued on a daily, monthly, or even quarterly basis based on assets under management at the end, beginning, or an average for a particular period.
Hedge fund managers typically charge fees between 1 and 3% and these fees are substantially higher than other investment vehicles, such as mutual funds. Also, funds of hedge funds charge an extra layer of management fees in order to cover the expenses associated with investing in the underlying hedge funds as well as managing investor capital.