Fee offsets are reductions to fund management fees based on certain fees or income that the general partner receives from portfolio companies or third parties. Fee offset provisions ensure GPs don't receive duplicate compensation for the same services.
Common sources include:
- Transaction fees paid by portfolio companies for deal structuring
- Monitoring fees for ongoing oversight
- Directors' fees received by GP representatives on portfolio company boards
- Broken deal fees when transactions don't complete
Fund documents specify what percentage of these fees must be credited back to LPs, typically ranging from 50% to 100% depending on the fee type. Transaction fees are often subject to 100% offset, whilst monitoring fees might be offset at 80%.
