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Navigating complexity in fee calculations to drive greater investor confidence

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By Brant Snyder
Director, Product Management, SS&C Advent



With each passing year, hedge, private equity, and hybrid funds become more varied, creative, and complex. The added intricacy of fund structures extends to investor fee agreements and calculations. The 2/20 model is ancient history – and often unworkable for today’s alternative investors. This article delves into the evolving world of fund fee structures and their challenges while exploring the need for innovative solutions to streamline fee calculations.

Putting the complexity in complex fee structures  

Modern fund fee structures are far from one-size-fits-all and incorporate multiple variables; management compensation, performance metrics, high-water marks, and hurdle rates are only part of the equation. Fee agreements must account for carried interest and spell out complicated waterfall distributions. Slicing fees based on specific deals, forms of liquidity, or side pockets in which different investors participate further complicates the calculations. The size of investor commitments and the length of lock-ups come into play when designing fee structures.

In today’s environment, fund managers increasingly have to negotiate highly customized, individual terms with different investors. A single fund may have various side letters and nuanced fee agreements. Moreover, the valuation of illiquid assets, which directly affects performance fees, is challenging for fee calculation. Layer on top of the sheer volume and variety of data fund activity generates, and it’s easy to see why fee calculations burden the operations team.

Fund managers are tasked with arriving at optimal terms fund investors will deem fair, leading to new and inventive fee structures. However, once the work is done, it falls to the fund’s accounting and operations teams to systematize the fee calculations and ensure they are accurate, executed efficiently, and delivered promptly. Firms also have to be sure they comply with exacting fee disclosure and reporting requirements.

Is it time to move away from spreadsheets?

Many firms today rely on spreadsheets to manually calculate fees for dozens or potentially hundreds of limited partners. This practice is time-consuming and fraught with a high risk of errors. Delays and discrepancies can have a chilling effect on investor relations and retention. The fee calculation process demands automation. Given the variety and complexity of fund structures today, few silver-bullet solutions are solving for all the variables, nuances, and side-letters. 

An intuitive, standalone calculation engine with tools to simplify building and operationalizing bespoke fee calculations is ideal for firms managing complex fund structures. The tool must give operations teams robust customization capabilities to create and control proprietary fee calculations based on the fund manager’s objectives. Flexibility to reengineer existing fee constructs or design entirely new calculations from scratch is crucial for firms to incorporate calculations automatically into their period-end processes.

The world of alternative investments continues to evolve, leading to increasingly complex fund fee structures and subsequent fund and fee structuring innovation. Modern fund managers are under pressure to negotiate customized terms while operations teams face the challenge of automating and ensuring the accuracy of these intricate calculations. The industry’s shift away from manual spreadsheet-based calculations is a necessary step toward efficiency and investor satisfaction. 



Brant Snyder, Director, Product Management, SS&C Advent – Brant, who is based in Boston, MA, joined SS&C Advent in 2011 supporting both Geneva Portfolio Accounting and Investor Accounting. He held several management positions within the support organization spanning several products before joining the Geneva Product Management Team in 2021. His current responsibilities include working closely with clients to assess new functionality requirements and prioritize the product roadmap. Brant holds a Bachelor of Science degree in Finance from Virginia Tech.

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