Reading a QOF operating agreement where the compliance cost gets pushed to the investors
Sitting on a 94-page LLC agreement plus a 130-page PPM for a fund raising into two current-map tracts, and section 7 has a cost allocation clause I haven't seen before in this shape.
The clause makes all costs of the fund's tax compliance, information reporting and any related professional fees a fund expense charged pro rata against distributions, uncapped, and it specifically calls out costs arising from reporting obligations imposed after the date of the agreement. Given that the July 2025 law put new reporting requirements on qualified opportunity funds and the details of how those get administered are still settling, that clause is doing more work than it looks like it's doing. My rough read is the sponsor has written themselves a pass-through for a compliance bill nobody can size yet.
What I have: $430k of gain from a partial exit on an industrial position, 180-day window closing in February. Fee stack otherwise is unremarkable, 1.25% asset management on invested capital, 15% carry over a 7% pref, ten-year term with two one-year extensions requiring an LP majority, which I like. Sponsor's two prior funds have distributed on schedule per the statements they showed me, though those are their statements.
What I'm unsure of: whether an uncapped compliance pass-through is now standard because nobody knows the cost, or whether I should be asking for a cap, say 25 basis points a year with anything above that borne by the manager. I've asked twice for an estimate in dollars and gotten a range so wide it isn't an answer, $40k to $200k a year at fund level on a $60M fund.
The decision is narrow. Do I subscribe with a request for that cap and accept I may just get told no, or treat the vagueness as the tell and let the February date pass? I have my own counsel reviewing and I'm not asking anyone here for a legal read on the clause, I want to know if others are seeing this language in funds they're looking at.