True-up
Also called true up, corrective adjustment, reconciliation adjustment.
True-up is an adjustment that corrects an amount previously calculated on an estimate or an interim basis, such as a management fee charged on a provisional figure, an expense allocated on the wrong ratio or a capital call made before a closing, so that the final figures match the basis the limited partnership agreement specifies.
Example
After its step-down a fund charges 1.5% of net invested capital, billed quarterly in advance on an estimate. The GP estimates net invested capital at $45M for the year, so the fee is $675,000, called in four instalments of $168,750. At year end a write-off brings actual net invested capital to $42M, so the fee should have been $630,000. The true-up is a $45,000 credit, applied against the first fee call of the following year, allocated to LPs in the same proportions in which they paid the original fee.
Confused with
Equalisation. Equalisation is the specific adjustment for LPs joining at a later closing, with an interest charge. A true-up is any correction to the agreed basis and usually carries no interest unless the LPA says so.
Restatement. A true-up corrects a figure inside the normal reporting cycle. A restatement reissues financial statements that were already published, which is a far more serious event.
In practice
True-ups appear as a separate line on the capital call or distribution notice, and LPs expect the calculation to be shown rather than netted silently into the next call. Where LPs pay different fee rates under side letters, the true-up must be computed LP by LP. The auditor will ask for the support for both the original estimate and the correction.