Most allocators read the headline carry split and skip the fee schedule. That's backwards. Carry is contingent — it only exists if the fund clears its hurdle. Fees are guaranteed. They come out before the cascade even starts, and on most private funds they're a bigger drag on LP outcomes than the carry itself.
The seven fee families
Different sponsors use different names for similar fees, but the underlying functions cluster into seven categories:
| Fee | Trigger | Typical range |
|---|---|---|
| Acquisition / origination | At asset purchase | 0.5–3.0% of price |
| Asset management | Annual | 1.0–2.0% of basis |
| Property / portfolio management | Annual or per-property | 2–5% of revenue |
| Disposition | At asset sale | 0.5–2.0% of price |
| Construction / development | During value-add | 3–6% of hard costs |
| Loan servicing / financing | At financing event | 0.5–1.0% of loan |
| Refinance | At refi event | 0.5–1.5% of new loan |
Where fees fit in the cascade
A common LP misconception: that fees come “out of the carry” or “before the catch-up”. They don't. With rare exceptions, fees are charged against gross proceeds beforethe waterfall starts. The cascade tier order assumes net-of-fees dollars are already what's flowing through.
That means a $10M asset sale with $400k of fees produces $9.6M of proceeds available to the cascade. The pref accrues on contributed capital regardless of the fee load — it doesn't increase to compensate for higher fees. The GP earns those fees and the carry on the remaining proceeds.
Reading the fee schedule
Three things to look for when you're evaluating a fund's fee load:
- Basis. A 1.5% fee on invested equity is much less than a 1.5% fee on AUM (which includes leverage). See Asset Management Fees: AUM vs. Invested-Equity Basis for why this is the most important question to ask about a fee.
- Offsets. Many institutional LPAs require that some portion of “transaction fees” — acquisition, disposition, financing — offset against the management fee. A 100% offset means the GP can charge the transaction fee but the LP gets a dollar-for-dollar credit against the management fee. Strong LP protection.
- Affiliate fees.Some funds use the sponsor's own affiliated entities for property management, leasing, or construction. These fees are charged at “market rate” but flow to the same parent company as the GP. A high LP-favorable standard requires those rates to be benchmarked annually by an independent third party.
Fee drag in numbers
For a typical value-add real estate fund with the fees above, a five-year hold on a 1.75× exit, and a $1M LP commitment, total fee load is often 8–12% of LP equity. That comes out of gross proceeds before the cascade — meaning the LP is starting the waterfall already net of about $80-120k of fees on their $1M.
On a 1.5× exit, fees of 10% of LP equity reduce the LP's net outcome from ~$1.5M (gross) to ~$1.4M (net) before the waterfall runs. That's before any pref or carry math even applies. The net effect is closer to a 1.4× exit on a no-fee structure than a 1.5× exit on the same fund.
What's “market”
Real estate funds have higher headline fee schedules than institutional buyout funds — partly because of the higher number of fee categories (property management, construction, refinancing in addition to the standard acquisition/management/disposition), and partly because the underlying assets generate operating cash that's structurally fee-able. A 2% AM fee + 1% acquisition fee + 1% disposition fee is roughly market for value-add real estate. The same load on a buyout fund would be considered aggressive.
For the long tail of operating fees — disposition, property management, loan servicing, the fees most sponsors don't highlight on the cover — read Disposition, Property Management, and Loan Servicing Fees.