How Can a Family Office Assess Whether a Fund's Fee Structure Is Fair?

Assess a fund's fee structure by tracing every charge to the work it pays for and measuring its effect on investor proceeds. A low headline rate can conceal charges elsewhere in the documents, while a higher fee may reflect specific services. Focus on the full economics and how they behave across outcomes.

Map Every Charge and Recipient

Request a written schedule of fees, expenses, and promote terms across the fund, its investments, and any affiliated service providers. For each charge, record who receives it, what it is calculated on, when it is due, and whether it is offset against another payment. Compare the schedule with the offering memorandum, partnership or operating agreement, expense policy, and side letters.

Look for acquisition, asset management, financing, refinancing, disposition, administration, investor servicing, and affiliate fees. Check whether a percentage fee is charged on committed capital, invested capital, assets, revenue, or sale proceeds. Watch for overlapping charges for work that appears to be covered by another fee, charges that continue when performance is weak, and affiliate payments without a clear description of the service. Ask for invoices or sample calculations where the amount depends on activity.

Connect Compensation to Work and Risk

Ask the manager to explain how its compensation relates to the work it performs and the capital it has at risk. Separate fixed compensation for managing the fund from transaction payments and performance compensation. If an affiliate receives fees, request its ownership information, scope of work, selection process, and evidence that the rate was compared with independent providers.

Ask:

• "What services does each fee pay for, and who receives it?"
• "Which charges are offset against management fees or other compensation?"
• "What affiliate relationships generate payments, and how were the rates set?"
• "How much compensation is due if the fund earns little or loses capital?"

For questions about whether expenses belong to the manager or the fund, see which expenses the manager should pay. Keep this page focused on the overall fee bargain; expense classification merits its own review.

Model What Investors Receive

Request a written waterfall example showing how cash is distributed after fees and expenses. Model a weak outcome, the manager's expected case, and a stronger outcome. Include delays, lower proceeds, added capital needs, and losses across investments. Compare gross and net results using the same assumptions, and show how each fee changes the amount and timing of distributions to investors.

Compare the terms with funds pursuing a similar strategy and with a direct investment alternative, taking account of the actual services and risks. Do not rely on a single market comparison without checking what the other manager's fee includes. The direct deal IRR and MOIC calculator can help organize return scenarios. For a separate review of net-return calculations, use the net returns question.

Resolve Ambiguity Before Signing

Red flags include inconsistent fee descriptions across documents, vague affiliate payments, missing examples, and a manager unwilling to explain a calculation. Record each unresolved item and ask for a written response or revised disclosure. Have your attorney review the contractual language and your CPA address relevant tax treatment.

Checklist

• Request a complete fee and affiliate payment schedule.
• Identify the base, recipient, timing, and offset for each charge.
• Reconcile the schedule to the governing documents and side letters.
• Model investor proceeds under weak, expected, and stronger outcomes.
• Compare terms with relevant alternatives and services provided.
• Get written answers to unresolved fee language before committing.

Go deeper: How can an investor verify that a manager has invested the amount claimed?; What should investors ask about carried interest and clawback protections?.

We kind of lean towards more performance fee only.

Sources: Family Office Club investor due diligence framework, Richard C. Wilson solo transcripts. Informational only, not financial, legal or tax advice.