§ 01
Total fees above 3% of NAV are a major drag. Top managers run 2-2.5% and waive fees during stress periods to protect NAV.
§ 02
| Fee component | Typical level | What to watch |
|---|---|---|
| Base management fee | 1.0-1.5% of gross assets | Lower is better; scales with leverage |
| Incentive fee on income | 17.5-20% above hurdle | Hurdle should be 7-8% annualized |
| Capital gains incentive | 20% of net realized gains | Less material in private credit |
| Total expense ratio | 2.0-3.5% of net assets | >3.5% destroys long-term returns |
§ 03
Compare ARCC (Ares) vs a smaller external-managed BDC -- pull total expense ratio from the latest annual report. The fee gap explains most of the long-run return gap.
§ 04
§ 05
You're comparing two similar BDCs. Manager A takes 1.5% base fee + 20% incentive over 8% hurdle. Manager B takes 1.5% base + 17.5% over 6% hurdle. Over typical cycle, which is better for shareholders?
Five questions · AI feedback
Sit with the ideas.
Why does the ARCC / Ares model have a long-term track record of out-performance?
Why: