Net vs Gross Returns
Gross returns are performance before fees/expenses; net returns are performance after all fees, carry, and costs borne by LPs.
Allocator relevance: High — the net/gross gap reveals true fee burden, economics alignment, and whether performance is durable after costs.
Expanded Definition
“Gross” can mean deal-level gross, fund-level pre-fee, or pre-carry depending on manager convention—allocators require definitions. “Net” should reflect the LP experience after management fees, fund expenses, and carried interest. A large gap can be acceptable in certain high-touch strategies but must be justified by value creation and reporting transparency.
Allocators often request a net-to-gross bridge: how much return is attributable to management fees, carry, expenses, financing, and timing effects.
Decision Authority & Governance
Governance requires accurate disclosure of fee basis, step-downs, offsets, expense policy, carry calculation mechanics, and side letter economics. Allocators treat inconsistent definitions or missing bridges as a reporting red flag.
Common Misconceptions
- Gross is standardized and comparable across managers.
- Net equals gross minus management fee (carry/expenses matter).
- A small gap always means investor-friendly terms (performance level can distort).
Key Takeaways
- Demand explicit definitions for gross and net.
- Review the net/gross bridge as a diligence artifact.
- Fee mechanics can change outcomes as much as deal performance.