Fee Drag
Private Credit glossary · Fund Structures, Returns & Economics
Definition
Reduction in net returns to LPs caused by management fees and carried interest.
Fee Drag in plain English
When you put money into an investment fund, you don't get to keep every dollar it earns — the people managing it take a cut. 'Fee drag' is just the name for how much those cuts shrink your actual take-home return. There are usually two cuts: a yearly management fee (a slice of your money charged just for running the fund) and 'carried interest' (a share of the profits, often around 20%, that the managers keep). Think of it like a fishing guide who charges a daily rate plus a portion of every fish you catch — you still go home with fish, just fewer than the boat actually pulled in. LP means 'limited partner,' which is the outside investor whose returns get dragged down.
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