Answer: The management fee for a private equity fund is based on committed capital until fully drawn

## Explanation Let's analyze each statement: **Statement A**: "A hurdle rate protects clients from paying twice for the same performance" - This is **incorrect**. A hurdle rate is the minimum rate of return that must be achieved before the fund manager can earn performance fees (carried interest). It protects investors from paying performance fees on returns that don't exceed a certain benchmark, but it doesn't specifically address "paying twice for the same performance." The concept of preventing double payment for the same performance is more related to high-water marks. **Statement B**: "The management fee for a private equity fund is based on committed capital until fully drawn" - This is **correct**. In private equity funds, management fees are typically calculated as a percentage of committed capital (the total amount investors have agreed to invest) during the investment period. Once capital is fully drawn down, the fee base may shift to invested capital or net asset value, but initially it's based on committed capital. **Statement C**: "The management fee is earned only after the fund achieves a return known as a high-water mark" - This is **incorrect**. A high-water mark is a feature related to **performance fees** (carried interest), not management fees. Management fees are typically charged regardless of performance as compensation for the fund's operational management. High-water marks ensure that performance fees are only paid on new profits after previous losses have been recovered. **Key Concepts**: - **Management Fee**: Annual fee (typically 1-2% of assets) for fund operations - **Performance Fee/Carried Interest**: Share of profits (typically 20%) earned after achieving hurdle rate - **Hurdle Rate**: Minimum return threshold before performance fees are paid - **High-Water Mark**: Ensures performance fees are only paid on new profits after recovering losses Therefore, statement B is the most accurate description of private equity fund compensation structures.

Author: LeetQuiz .