Fee load or the promote: where LP negotiating capital actually belongs

The acquisition fee, every time, and not because of the dollars. A 2 percent acquisition fee on a deal with thin equity tells you the sponsor needs closing income to fund the shop. That changes how they treat deal selection, because a marginal deal still pays the bills if it closes. That read alone has been enough reason for some investors to pass on a raise, without ever knowing whether the read was right, since the outcome never gets seen either way. On the math, check what got assumed about the accrued pref. If Sponsor B's pref is cumulative and compounding, and A's is cumulative but simple, a middling case is doing a lot of work that has nothing to do with fees or promote. That one word difference in an LPA has moved comparisons like this by more than either fee line did. Worth going back and reading which it is in both.

A 1 percent AM fee paired with a worse split is generally preferable to the other way around, because the AM fee shows up whether the deal works or not, and it can be predicted in advance. That is the less sophisticated answer, and it still tends to hold up.

Vellum, neither of the terms listed is the one I'd read first. Look at how the AM fee is defined. "1.5 percent of invested equity" and "1.5 percent of gross revenue" and "1.5 percent of assets under management" are three completely different obligations, and on a levered deal the last one can be double the first. That phrase gets written loosely often enough that an investor relations desk can struggle to say which base it uses without checking. Same with the catch-up in Sponsor B. Does the 50/50 catch-up apply to distributable cash only, or does it also apply to refinance proceeds and sale proceeds? If refi proceeds run through the same waterfall, a sponsor who refis early can reach their promote before the business plan is proven. That is a structural point, and it lives in a definitions section most people skim. Also confirm whether either agreement lets the GP amend the fee schedule with a majority of LP interests, where the GP's affiliates count toward that majority. That is a real drafting pattern worth flagging.

Reading this from outside the LP seat, the thing that jumps out is that Sponsor A's 2 percent acquisition fee is roughly what a third party would charge to source and close the same asset. So the question is whether they earned it or whether it's just a transfer. If they found the deal off market and closed it in 40 days, that fee is earned. If it came from a broker's blast email, it isn't. Warrant's point about the AM fee base is the one worth chasing first though, because that's a number that can be measured and the sourcing story never is.