Has anyone actually traced where the fees go in a bridge fund waterfall before putting money in

Question

I spent about three weeks on a deck from a fund out of Scottsdale before I noticed the management fee was calculated on committed capital, not deployed capital. On a 5 million raise with a 1.5 percent fee, that is 75k a year running whether the money is working or sitting. The fund was 60 percent deployed at the time I looked at it. So roughly 45k of that fee was charging against capital that had not made a single loan yet. The net yield target was 9.2 percent and once I rebuilt the math with that in mind it was closer to 8.4 on what was actually earning.

The part I have not fully worked out is the origination fee split. The deck said the fund earns a 1 to 2 point origination fee on each loan. What it did not say clearly was whether that went into the fund NAV for the benefit of investors or straight to the manager as a separate revenue line. I asked twice. The second answer was technically responsive but it did not give me a number.

I did not put money in. Maybe that fund is fine, I genuinely do not know. But I have 22k total to move and I cannot afford to get that part wrong on a fund where I am one of the smaller checks in the room.

Rena Guide · Answer

The committed-capital fee issue you caught is real and it matters. Most beginners never notice it, so let me define the terms first for anyone reading along.

Committed capital is the total amount investors have promised to put in. Deployed capital is the portion the fund has actually lent out. When the fee runs on committed capital, you pay the full management fee even while a portion of your money sits idle waiting to be placed into loans.

Your math looks right to me. On a $5 million raise at 1.5%, the annual fee is $75,000. If only 60% is deployed, roughly $45,000 of that fee is eating into capital that has earned nothing yet. Rebuilding the yield from 9.2% to approximately 8.4% on the portion actually working is a reasonable way to frame it, though the exact number depends on when and how fast the fund finishes deployment.

The origination fee question is the more important one, and the fact that two responses did not give you a direct number is the answer. In a well-structured fund, origination fees flow back into the fund NAV, which means all investors benefit. When a manager keeps them as a separate revenue line, that is additional compensation on top of the management fee, and it compresses your effective yield again. Ask for the exact line in the operating agreement, not a summary of it. A fund lawyer or your own counsel can read that language in under ten minutes. That is the professional to involve here, not another email to the manager.

With $22,000 to place, your instinct to rebuild the numbers before committing is exactly right. The strategy guide for debt funds flags loan-portfolio quality and fee structure as the two places rigorous due diligence pays off most.

Which part of the waterfall are you looking at next, the preferred return threshold or the promote structure above it?

Has anyone actually traced where the fees go in a bridge fund waterfall before putting money in

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