Comparing fund manager fees and terms for billionaire families

Built on Chapter 10 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.

Compare the amount the family may actually pay and the conditions under which it pays it. A headline fee can leave significant economics elsewhere in a fund's terms. The office needs a consistent account of costs before judging whether a proposal fits the portfolio.

Chapter 10 places investment structure and detailed evaluation within manager selection. I would make the fee comparison part of that diligence. The appropriate professionals should explain the actual documents and identify assumptions affecting the calculation.

A higher fee needs an identifiable reason

For investors comparing fees, I point out that an attractive structure does not necessarily mean cheap fees. Investors may accept substantial compensation when the value and incentives justify it.

I would have a family compare fees alongside what the manager actually provides and the risk it shares. Ask whether the terms buy useful access or demonstrated capability. Keep the full expense burden visible. A low headline rate can still accompany unattractive economics, while a higher rate deserves evidence beyond the manager's confidence in its own value.

Establish the scope of the comparison

Identify the vehicle and share class or other arrangement under consideration. A quoted fee for a related product may not apply to the proposed investment. Keep the commercial summary connected to the actual terms.

List the costs relevant to the investor's experience. Ask which charges sit at the fund level and which may arise elsewhere. The office should understand what is included in the comparison and what remains uncertain.

Use a common basis across candidates where possible. A visible fee for one fund and an estimate of total costs for another can create a misleading ranking. Explain differences that cannot reasonably be reconciled.

Ask how the calculation works

Ask the responsible professionals to show the amount used to calculate each charge, when the charge accrues, and when it becomes payable. Keep that calculation beside the provision that authorizes it.

Examine the treatment of performance-related compensation where applicable. Use qualified assistance to assess how the terms operate under different investment outcomes. The office should understand the method without relying on a favorable sales example.

Keep the assumptions beside any illustration. An example can help explain a provision, but it should not imply that the illustrated return or distribution pattern will occur.

Review expenses and special situations

Ask what expenses may be charged and who has discretion over them under the documents. The office needs to understand relevant limits and disclosure arrangements. Ask counsel to assess the actual expense provisions.

Consider the economics of an early exit or other change if such action is available. Access terms can affect the cost and feasibility of ending the relationship. The family should assess that before treating the investment as readily adjustable.

Review any separate arrangements with intermediaries or advisors. Compensation relevant to the recommendation should be disclosed through the office's conflict process. The source of an introduction can affect the incentives surrounding the decision.

Evaluate concessions in their actual form

A negotiated reduction should appear in the appropriate documentation. Confirm which investor and commitment it covers and whether conditions apply. The committee should not base its decision on an informal expectation that the terms will improve later.

Compare the concession with the rest of the arrangement. A lower fee may come with a different access condition or commitment. Explain the combined obligation to the decision maker.

Keep versions identifiable during negotiation. The investment team, counsel, and accounting staff should work from the same accepted terms. Conflicting summaries can produce errors after the investment begins.

Connect cost with the assigned portfolio role

The lowest visible fee is only one input. The family should assess the investment approach, operating arrangements, and terms alongside cost. A manager still needs to fit the mandate and provide evidence supporting the recommendation.

Evaluate performance on an understood cost basis. Chapter 10 warns about inconsistent measures, so the office should know whether the figures used in selection reflect the costs relevant to this investor.

Avoid treating scale as proof that the family will receive a particular concession. Request terms for the actual commitment and assess them on their merits. Negotiating power does not make an undocumented benefit part of the contract.

Preserve the terms for monitoring

Give the responsible staff a clear record of the accepted economics. They should be able to compare reported charges with the arrangement and obtain clarification when figures differ. Assign ownership of that review.

Bring material changes through the authorized process. A revised term can affect the original investment case even if recent performance remains attractive. The office should understand the change before accepting a new obligation.

What to take from this

Compare costs on the same defined basis.
Examine the method and conditions behind each charge.
Preserve accepted terms for ongoing verification.

This page is general information, not legal advice. Family governance documents and dispute processes should be reviewed by a qualified attorney.

Questions and answers

Is the lowest fee always preferable? Assess the full cost and the manager's fit with the assigned portfolio role.

Can the office rely on a negotiated promise? Confirm the relevant provision in the appropriate documents before including it in the decision.