Fund economics

Management fee offset

Also called fee offset, transaction fee offset, fee credit.

Definition

Management fee offset is the mechanism in a limited partnership agreement by which fees the general partner or its affiliates receive from portfolio companies, such as transaction, monitoring, advisory or director fees, reduce the management fee charged to the fund, in whole or in part.

Updated October 9, 2026Checked against our editorial standards

Example

A fund's management fee for the year is $2M. During the year an affiliate of the GP earns $300,000 in board and monitoring fees from portfolio companies. The LPA sets a 100% offset, so the fee falls to $1.7M and the next quarterly fee call is reduced by the credit. With an 80% offset the credit would be $240,000 and the fee $1.76M. If the credit in a period is larger than the fee, the excess carries forward to the next period rather than being paid to LPs in cash.

Confused with

Management fee waiver. A waiver is the GP choosing to forgo fee, usually to fund its own commitment. An offset is a reduction driven by fees received from elsewhere.

Fee step-down. The step-down is a scheduled change in the rate or basis after the investment period. The offset is a running credit that can apply in any period.

In practice

The offset only works if the GP reports affiliate fee income to the administrator every period, which is why it is a standard audit question. Which fees count, and at what percentage, are LPA terms. Where side letters give some LPs a different fee rate, the credit has to be allocated LP by LP rather than at the fund level.

Related terms

Management feeThe management fee is an annual charge paid by the fund to the management company, typically 2% of committed capital during the investment period, often stepping down afterwards to a lower rate or a basis of invested capital, to cover salaries, rent and the cost of running the firm.
Expense allocationExpense allocation is the determination of who bears each cost: the fund and its limited partners, the management company out of its fee, or several funds and co-investment vehicles sharing a cost pro rata, according to the expense provisions of the limited partnership agreement and the manager's written allocation policy.
Side letterA side letter is a bilateral agreement between a fund and a single limited partner that grants that LP terms beyond the limited partnership agreement, such as a management fee discount, most-favoured-nation rights, co-investment rights, excuse rights or additional reporting, and must be tracked and honoured in every subsequent calculation and notice.
Organisational expensesOrganisational expenses are the costs of forming and raising a fund, including legal fees for the LPA and offering documents, regulatory filings and formation of the fund entities, which the fund bears up to a cap set in the limited partnership agreement, with any amount above the cap paid by the general partner.