Fee Offset
A fee offset reduces management fees by crediting certain deal or transaction fees earned by the GP against the fund’s management fee.
Definition
Fee offsets are provisions that determine whether and how fees received by the GP (such as transaction fees, monitoring fees, or advisory fees from portfolio companies) reduce management fees charged to LPs. Offsets are designed to prevent double-charging and align GP compensation with LP fairness expectations. Allocator Context Institutional LPs increasingly expect clear fee offset policies, particularly in buyout and growth strategies where portfolio company fees can be material. The key questions for allocators are: what fees are charged, what percentage is offset, and how transparently fees are reported. Decision Authority Fee offset terms are reviewed during fund terms diligence and often require legal confirmation. Weak or unclear offset language can trigger IC questions and slow down approvals. Why It Matters for Fundraising Fee offsets are a trust issue. Managers who proactively disclose fee sources and offset mechanics tend to face fewer objections and less legal back-and-forth. Key Takeaways Prevents double compensation Reporting transparency matters as much as economics Weak offsets can slow institutional approvals Clear disclosure improves close velocity