New ILPA template details private equity fees, costs and carry

  • New template itemizes offsets to management fee
  • Draft template lists advisory fees, broken-deal fees, many others
  • Template tracks carried interest accrued and collected by GPs

The Institutional Limited Partners Association’s new template for reporting private equity funds’ fees and expenses itemizes a wide range of costs and details the amount of carried interest general partners collect and accrue, according to a draft of the template seen by Buyouts.

ILPA plans to publicize its initial draft of the template on October 21. The organization will then hear comments from several dozen private equity firms, other industry organizations and service providers before finalizing the template early next year.

ILPA, which did not provide the draft document to Buyouts, is hopeful that the template will provide some common ground for LPs, GPs and service providers moving forward. Even if individual LPs continue to use their own templates in the future, the adoption of the template by major LPs and GPs could standardize the basic definitions of certain fees and expenses, said Jennifer Choi of ILPA.

“If enough LPs are approaching this from a similar space, and the third parties can fine tune their offerings to respond to that … hopefully that will lead to economies of scale,” Choi said.

The template itemizes fees charged to funds’ underlying portfolio companies, which GPs often offset against the management fee paid by their limited partners. While many GPs include this information in their reports to LPs, the way in which they do so varies, which makes it difficult for investors to determine how the companies may have been affected by those charges.

Specific fees and costs detailed in the ILPA template include advisory fees, broken-deal fees, transaction and deal fees, directors’ fees, monitoring fees, organizational costs, placement fees and capital markets fees, according to the draft document. GPs can also track the amount offset alongside each fee for each reporting period, on a rolling 12-month basis and since inception.

The template also specifies the amount of carried interest the GP takes over the course of a reporting period, the previous 12 months, and since the fund’s inception. Similarly, the template records the amount of carried interest the GP expects to accrue if it exits a fund’s assets at their current valuation, an amount that is difficult for many LPs to track on their own, sources have told Buyouts.

Push for standardization

Several institutional investors, including many ILPA members, launched reviews of their private equity programs over the last few months to get a better grasp on the costs associated with their investment portfolios. Scrutiny over costs swelled after April, when staffers for the California Public Employees’ Retirement System said they did not know how much carried interest their fund managers took from their investments.

That announcement, along with a widely circulated letter from state treasurers to the SEC, led many LPs to call for some form of standardized reporting as a way to help investors compare the costs of their programs, as well as the expenses associated with different GPs.

The push for standardization remains an uphill battle, however. Previous standardized templates for capital calls and distributions failed to generate traction, sources say. Many LPs vary in how they define different fees and expenses, and there are questions as to whether smaller buyout firms have the resources to provide this level of detail in their reports.

“While ILPA strives to serve the needs of all institutional LPs, it understands that no single template will accommodate all information needs for all investors,” ILPA said in a “frequently asked questions” document included with the template draft. “The intent, however, is to establish a more uniform set of expectations around core information required that will lessen the need for bespoke reporting formats or requests from individual investors.”

Action Item: Contact ILPA at 416-941-9393 or