Management company
The entity that employs the team and receives the management fee.
The management company is separate from the fund itself. It signs the advisory agreement with the fund, pays salaries and office costs and is the entity regulators register.
A manager usually runs one management company across all its funds, with each fund having its own general partner entity. The management company is typically the registered investment adviser or exempt reporting adviser, so it holds the compliance program, policies and regulatory filings.
LPs diligence the management company's budget, ownership and succession. They want to see that fees cover a stable team, that ownership and carry are shared in a way that keeps key people, and that the business does not depend on raising the next fund quickly to survive.
Worked example
A $100M fund pays its management company $2M a year in fees. The company spends $1.3M on salaries for four people, $250,000 on office and travel, $200,000 on compliance and fund administration costs that are not charged to the fund, and keeps $250,000 as a buffer for slower years.
Common questions about management company
Why is the management company separate from the fund?
To keep the business of managing money apart from the money itself. The fund holds investments for LPs, while the management company employs staff, signs leases and carries the regulatory registration.
Can outside investors own part of a management company?
Yes. GP stake investors and some anchor LPs buy minority stakes in management companies, receiving a share of fees and sometimes carry. LPs will ask how that affects the team's incentives.