How Should a Family Office Assess a Manager's Personal Investment Alongside Fund Investors?

A manager's personal investment helps show alignment when you can see what is funded, when it is at risk, and how its terms compare with yours. Treat the stated commitment as a starting point. Request records and compare the manager's exposure with the fund's obligations and economics.

Establish What Is Actually at Risk

Request a schedule with the manager's amount contributed, amount still committed, funding dates, and source of funds. Ask whether the commitment belongs to the manager personally, an affiliate, or an entity funded by fees or other investors. Confirm the contribution through fund records, such as capital account statements and bank records. Confidential information can be removed where needed.

Find out whether the commitment is binding and what conditions could reduce, delay, excuse, or return it. Compare the manager's capital calls with investor calls. If the manager funds later, can decline a call, borrow the contribution, or withdraw on different terms, the stated amount may overstate the risk shared.

Compare the Economics and Downside

Review whether the manager pays the same fees and expenses as other investors and shares gains and losses on the same basis. Ask whether a different class, fee waiver, liquidity right, guarantee, or reimbursement protects the manager. A contribution can be real while its economic exposure is much smaller than an LP's.

Request a side by side schedule of the manager's terms and the fund investors' terms. Ask how a loss, a capital call, a delayed exit, or follow-on financing would affect each. If the manager's capital is debt financed or supported by another party, ask who bears repayment risk. Read the governing documents and any side letters for the actual rights. Have your attorney review legal terms and your CPA address tax treatment.

Separate Fund Investment From Co-Investment

A manager investing in the fund differs from an offer of separate co-investment. For a co-investment, ask how the opportunity was allocated, whether the fund and co-investors enter at the same price, and whether they receive information and exit at the same time. Ask who pays transaction costs and who controls decisions if interests diverge.

Find out what benefit the manager expects from offering the allocation, such as a larger fund commitment or a strategic relationship. A co-investment may carry reduced fees or different control rights, while the agreement can place more responsibility on you. Ask whether participation is optional, how much time you have to review it, and what happens if the fund changes its terms or timing. See what to check before investing alongside a sponsor.

Ask Direct Questions and Record the Answer

Ask: "How much has the manager funded, and what records support that amount?" "Can the commitment be reduced, excused, or withdrawn?" "Does the manager bear the same loss and fee burden as fund investors?" "Is any part borrowed or reimbursed?" "Are personal accounts or other vehicles receiving the same deal on different terms?" Request written answers that point to the controlling document or record.

Different economics are not automatically improper, though unexplained exceptions deserve follow-up. Watch for a commitment described as funded when it is only promised, vague answers about the source, or refusal to disclose different rights. Keep unresolved points visible in your decision record.

Checklist

• Obtain funded and unfunded commitment amounts with supporting records.
• Confirm the source of the manager's capital and any borrowing or reimbursement.
• Compare call timing, fee treatment, loss exposure, and withdrawal rights.
• Review governing documents, side letters, and any co-investment agreement.
• Ask how allocations and information compare; then compare pricing and exit timing.
• Record unanswered questions and have counsel review material differences.

Go deeper: What evidence shows that a fund's key employees are committed for the long term?; How can investors identify conflicts between a manager's personal interests and the fund?; What should an investor ask about a fund's side letters?.

Family offices typically are more secretive than other investors, they work off of referrals a lot of the time, they are more long-term oriented than high net worth individuals and fund of funds,

Sources: Family Office Club investor due diligence framework, The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.