Effect of management fees and Organizational Expenses
on Distributions to Investors
The question is whether the amount of profits which are distributed to a fund’s investors
should be reduced by the management fees and organizational expenses that are incurred by the fund.
1
Institutional Limited Partners Association (ILPA):
ILPA takes the position that profits
should not be reduced by management fees and organizational expenses incurred by the fund prior to distributing the same to the fund’s investors.
Further, all management fees and organizational expenses incurred by the fund should be returned to the fund’s
investors as quickly as possible (as opposed to pro rata in U.S. Market Standard).
2
U.S. Market Standard
Like ILPA, the U.S. market standard is that profits should not be reduced by management fees and organizational expenses. However, unlike ILPA, the
U.S. Standard is that these fees/expenses should be returned to investors pro rata on a deal by deal basis.
That is, if an investment of a fund is sold, then investors will only receive their pro rata share (based on their relative capital contributions attributable to the realized investment) of the management fees and organizational expenses that are attributable to the investment which was sold.
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