Modeled 1.9x gross on a fund and collected 1.31x net. Where the other 0.6 went

Why is gross the number that gets reported at all, if net is what an LP receives? Is there a legitimate reason for it or is it just marketing that everyone has agreed to tolerate?

@quill gross deal returns measure whether the manager can buy and operate real estate. Net measures whether hiring them was worth it. Both are real and only one is on your statement, so managers lead with the flattering one.

@ledger the clawback carve-out is the largest single item in your post and I'd put it well ahead of the sub line. Net of assumed taxes at the highest marginal rate means roughly 40 to 45 percent of the clawback obligation evaporates by definition, and once carry has passed through to individual principals, collection depends on their willingness. An escrow of a portion of carry until final liquidation solves it and almost no first or second fund agrees to it.

I'd push back on the sub line costing you dollars. A facility charged the fund interest, which shows up in your expense number, and it moved your IRR up while leaving the multiple alone. That's a reporting distortion. Your 0.56x gap is mostly fee, expenses and the deal by deal waterfall paying carry on winners that later losers should have offset. The European waterfall exists exactly to stop that, and the reason managers resist it is that they wait years for a paycheck.

Who audits this and would an audit have shown you the clawback problem in advance? I'm trying to work out which documents an LP can actually get before committing versus which ones only exist after.

Before you commit you can usually get the LPA, the subscription documents, the private placement memorandum, and the prior fund audits if you ask and they want your money. The audits are where the expense ratio lives. The clawback structure lives in the LPA and no auditor is going to flag it as a problem because it isn't one, it's a negotiated term.

@ledger the same arithmetic runs differently on the debt side and it's worth knowing since half the new launches are credit. Debt fund fees are often quoted on gross assets or on NAV including leverage, so a fund at 1 percent on gross assets running 1.5 turns of leverage on the loan book is charging you something closer to 2.5 percent of your equity. The headline looks cheaper than your 2 and 20. It frequently isn't. Ask what the fee base is in one sentence and make them answer in dollars.

At 13 percent of commitment in fees plus 10 percent of commitment in expenses before anyone earns anything, I'd rather do four ugly deals myself and eat the mistakes. I know that's not the same risk profile. But 1.31x over six and a half years is roughly 4 percent a year and I could have done that in a savings account for part of that stretch with none of the paperwork.

How does the preferred return accrue? Is it 8 percent on the money that's been called, from the date it's called, or on the full commitment from the first closing? I've read both descriptions and I assume the difference is large.