How common is it for a GP to charge an LP or an external investor an upfront fee when signing up for a co-invest with them as opposed to or in addition to mgmt fees and carry? Is this practice looked down upon by the SEC? I wonder if you're a registered investment advisor it could look like a brokerage fee...
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If you aren’t an investor in the fund then very common to charge on co-invest.
Even if you are in the fund as an LP, then arrangement fees or monitoring fees becoming more common. This is driven by demand for co-invest by most large LPs
Yes some level of management fee, 50 or 100bps for Coinvest isnt unreasonable, but an upfront fee?? I wouldn't pay an upfront fee, and frankly I've never really heard of that to be honest.
Super common in real estate - GPs will try to charge an acquisition fee in addition to management fees and promote (carry). Some LPs will push back, others will just pay it. Less common in Corporate PE, but maybe it’s bleeding over.
But how would the GP really get away with it? The sec is clamping down hard on managers that do these quasi brokerage fees or referral fees.
Extremely common in the lower middle-market and in real estate, most just call it a consulting fee for their role in diligencing the opportunity and state it as a flat fee rather than as a % of the investment size. Every independent sponsor I know of charges a closing fee structured this way. SEC should not be a problem, and if the outside investors are not currently an LP of the fund, there likely won't be too much push back unless it is egregious.
It also depends on the role of the co-investor. If the co-investor is doing co-underwriting and on the hook for broken deal costs then I haven’t seen the arrangement fees charged.
But in a syndicated co-invest situation the justification could be the deal costs that have been incurred. In this situation though there isn’t usually a management or carry fee
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