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2. Suppose a private equity fund has $100 million in total committed capital and its investors have agreed to a 1.50% annual management fee. The

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2. Suppose a private equity fund has $100 million in total committed capital and its investors have agreed to a 1.50% annual management fee. The fund invested in 10 companies during the first 5 years and begins to exit its investments in year 6 at the rate of two exits per year until the end of year 10, when all investments have been exited. Assume the original cost basis for each investment is $10 million. Also assume that management fees are calculated based on the beginning-of-year balances. How much in lifetime management fees does the PE firm earn, based on each of the following two methods? (a) Constant fee \% and total committed capital for the life of the fund. (b) Constant fee \% with basis changing to net invested capital at the beginning of year 6. (c) Which method of calculation aligns better with the fund management services the PE firm will provide

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