REPORT

Private Markets Fee Diligence: A COO’s Checklist on Fees and Expenses

Private market fees and expenses can be complex, making comprehensive governance important for LPs seeking to support accuracy, auditability and fiduciary oversight.

This practical LP guide outlines key checks to help COOs and senior finance teams assess fund economics against governing agreements, identify potential inconsistencies and determine where further investigation may be warranted.

Written by eFront FAIR fee diligence experts, it covers management fees, preferred returns, waterfall structures, side letters, carried interest allocations and capital account reconciliations.

What you’ll learn:

  • Validate whether management fee calculations reflect key fund dates and LPA terms
  • Assess carried interest and preferred return calculations against waterfall provisions
  • Check whether negotiated side letter fee arrangements are being applied correctly
  • Review partnership expense allocations and reconcile capital account movements
  • Identify inconsistencies that may warrant further investigation or specialist review

Frequently asked questions on fee diligence

  • The most effective starting point is to review the fee provisions in the fund's limited partnership agreement (LPA), confirm key fund dates, and validate that fee calculations are based on the correct fee basis, such as committed capital, invested capital, or remaining cost. Periodic checks can help identify operational errors and fee calculation discrepancies.

  • LPs can compare reported carried interest allocations against pre-carry gains, the stated carried interest percentage, and the waterfall provisions outlined in the LPA. While detailed validation may require specialist review, high-level checks can help identify whether allocations appear reasonable from an economics and from a fund accounting perspective.

  • Side letters often contain negotiated fee discounts or preferential economics that differ from standard fund terms. Periodic reviews help ensure those agreed-upon terms are being applied correctly and that management fees are calculated using the appropriate rate and methodology. This can also support effective operational due diligence processes.

  • Asset owners should review management fees, partnership expenses, carried interest allocations, and capital account movements at least quarterly or whenever fund reports are received. Regular reviews can help identify potential issues early and provide greater confidence that fund economics align with governing agreements.

  • Independent fee validation can provide LPs with an additional level of oversight by assessing fees, expenses and carried interest calculations against governing agreements. A consistent, standardized approach can help identify potential inaccuracies, support audit and fiduciary oversight, and provide greater transparency over fund economics. Ongoing validation and reporting can also help LPs maintain oversight as portfolios grow and become more complex.

    Learn more about eFront FAIR’s independent fee validation services.