What Disclosures Should Investors Expect About Related-Party Transactions?

A related-party disclosure should let you identify who is connected, what the fund is paying or receiving, and how the arrangement was reviewed. A passing reference to an affiliate leaves important questions unanswered.

Identify the Relationship and Service

Request a schedule of related parties that names the person or entity, explains the connection to the manager, and describes each service or transaction involving the fund or its portfolio companies. Ask whether the arrangement covers administration, advisory work, financing, property services, referrals, asset sales, or another activity. The disclosure should explain the business purpose and whether the relationship is ongoing.

Ask for the amount paid or received, how it is calculated, and who receives it. If the amount varies, ask what causes it to change. For shared expenses, request the allocation method and the records used to apply it. A broad category such as "professional services" may need a breakdown before you can understand the cost.

Check Approval and Pricing

Ask: "Who approved this arrangement?" "Was the reviewer independent of the manager?" "How were the terms compared with alternatives?" "Can the fund terminate or replace the provider?" "How are changes in cost or service quality reported?" Request the policy and any approval record that supports the answers. If outside bids or quotes were considered, ask for a summary of that process.

Find out whether approval is required before a transaction begins, and whether investors or an advisory committee have consent rights. Ask what happens if a provider underperforms or the arrangement stops serving the fund. A clear disclosure should describe the review process and how decisions are recorded, not only state that an affiliate may be used.

Reconcile Documents and Expense Reporting

Compare the related-party schedule with the offering documents, partnership agreement, side letters, expense policy, financial statements, and investor reports. Look for differences in names, services, amounts, or approval rights. If reports show only combined expenses, ask for enough detail to identify related-party payments. Talk with your attorney about document rights and your CPA about tax specifics.

Related-party payments connect to the broader fund expense allocation policy. Check which costs belong with the manager in the review of manager-paid expenses. If investors receive different terms, compare the terms offered to different fund investors.

Recognize Gaps That Need Follow-up

Red flags include unnamed affiliates, unexplained payments, missing approval records, inconsistent expense categories, or a refusal to describe how pricing was assessed. These are reasons to ask for clarification, not proof of misconduct. Request the missing schedule or supporting records in writing. If a material point remains unresolved, bring it to the investment committee before deciding whether the disclosure is adequate.

Checklist

• Obtain a named schedule of related parties and their relationships.
• Request the service description, purpose, amount, and payment method.
• Ask who reviewed and approved each arrangement.
• Check pricing comparisons, termination rights, and change reporting.
• Reconcile disclosures to governing documents and expense records.
• Record unanswered questions and seek supporting documents.

Go deeper: How can a family office assess whether a fund's fee structure is fair?.

Conflicts of Interest - Consider all the possible conflicts of interest, like self- or related-party dealing, and make sure that they must be disclosed and pre-approved by you.

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