Fund Information. GP Fees, Carried Interest and Fund Operating Expenses.

Purpose

Information on amounts earned by the General Partner (GP) from the fund and portfolio companies together with the fund operating expenses should be disclosed in order to verify compliance with the fund formation documents. In addition, management fees, transaction and other fees and carried interest arrangements are unique to each fund and such disclosure provides transparency to investors.

Requirements

The information below should be reported for the current reporting period, year to date (or last twelve months) and, if available, since inception. In addition, where a material difference has been identified between the audited accounts and the relevant report, a reconciliation of the difference should be disclosed and explained.

Amounts earned by the GP from the fund and portfolio companies

Management Fees

• Management fees paid or payable to the GP by the fund should be disclosed together with the basis of calculation;
• In some funds, any transaction fees and other fees earned by the GP from the portfolio company are offset against the management fees either in full or in part. If this is applicable then the disclosure of management fees should show the gross management fees paid or payable to the GP, the amount of the offset applied in respect of the transaction and other fees, and the net management fees. It should be clear from the disclosure what percentage offset applies.

Transaction and Other Fees

• The nature and source of all benefits and fees paid directly or indirectly by portfolio companies to the GP and/or any related entities/individuals (such as employees, operating partners, advisers or similar) should be disclosed. Typically, these items will include but not be limited to arrangement fees, underwriting fees, directors’ and monitoring fees and transaction fees (including those earned at the time of investment and sale, where relevant). The treatment of such fees will be specific to each individual fund, often determined in the fund formation documents and the reporting should show clearly the treatment adopted.

Carried Interest

• Disclosure of whether the hurdle rate has been exceeded;
• Carried interest earned on the realised and unrealised portfolio should be disclosed with a breakdown of the following items:

– Total amount of carried interest earned from realisations, indicating how much has been distributed
– If undistributed carried interest is held in escrow, then the amount in question should be disclosed
– Total amount of carried interest payable on unrealised investments assuming they are realised at the current fair value
– Value of any potential clawbacks of carried interest (this is unlikely where the fund is structured with whole fund carry).

Fund Operating Expenses

• Disclosure of the fund’s operating expenses providing a breakdown by category as is appropriate. This would typically include expenses such as audit, tax, Portfolio Asset legal, Fund legal and Annual Investor Meeting costs. Separate disclosure should be made, where relevant, for fund formation costs, fund borrowing costs (including interest expense and fees) and aborted deal costs. (The information may be disclosed in the fund financial statements.)

Additional Possible Disclosures

• Where disclosures are being made of information in accordance with the fund formation documents, consideration should be given to annotating references to specific sections of the fund formation documents where relevant;
• Transaction and other fees may also be analysed by Portfolio Asset.