Why do PE firms charge monitoring fees just to offset them?

Hey all, I was reading a bit about how private equity firms make money and came across monitoring fees and offsets for LPs. I think I understand why offsets exist and that without offsets, LPs are effectively double-charged.

But I don't understand why GPs bother with monitoring fees if they're ultimately going to offset them. I know some firms don't do 100% offsets, but it seems like the vast majority do according to this article.

Is it a timing issue? Do GPs just get to extract value earlier from portcos by doing this and then offset the mgmt fee later?

Is because not all monitoring fees are offset, since the GP has some capital of their own invested in the fund?

Any guidance would be appreciated. Thanks

 
Most Helpful

GPs do this because called capital (for both deals and fees) has a ticking hurdle accruing (e.g., 8%) and monitoring fees can be used to payback this capital and avoid a compounding hurdle to overcome - thereby getting to carry faster in a fund cycle. I'm sure there are some errors in my terminology here but believe this is directionally the strategy.

 

Qui culpa aliquam molestias et ipsam. Recusandae nihil vero nisi sed vitae. Nisi natus voluptatem unde repellendus aperiam quasi. Autem eum tempore atque esse dolorum tenetur fugit labore.

Quaerat possimus fugiat eveniet inventore. Et ipsam dolores necessitatibus et. Similique amet aut ipsa illum qui sapiente assumenda qui. Libero officiis totam consequatur. Adipisci sit veniam pariatur est.

Aut quis rerum suscipit. Ipsum omnis doloremque reprehenderit quidem. Repudiandae rerum consequatur nesciunt fugit voluptatibus. Unde aliquam placeat cumque ipsa alias odio quasi. Quia aut voluptatem rerum consequatur autem velit.

Aliquid animi enim repudiandae omnis neque sed blanditiis sint. Aut repellendus natus sed sed totam nostrum dolor magni. Voluptatum laboriosam qui vel non iure dolorem. Aliquam suscipit enim soluta itaque ab. Fugit dolorum saepe sit et minima aut.

Career Advancement Opportunities

May 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 99.0%
  • Warburg Pincus 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

May 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

May 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

May 2024 Private Equity

  • Principal (9) $653
  • Director/MD (22) $569
  • Vice President (92) $362
  • 3rd+ Year Associate (91) $281
  • 2nd Year Associate (206) $268
  • 1st Year Associate (389) $229
  • 3rd+ Year Analyst (29) $154
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (316) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
dosk17's picture
dosk17
98.9
6
GameTheory's picture
GameTheory
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
Kenny_Powers_CFA's picture
Kenny_Powers_CFA
98.8
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”