Finance
Bringing transparency to management fee and carried interest calculation
We identify where AI removes cost and where it quietly adds risk.
Every engagement begins with a scoping conversation. If a smaller package is the right starting point, we will say so.
Overview
Fee and waterfall calculations are among the most consequential and least visible processes in a fund business. They depend on terms negotiated years earlier, varied by side letter, applied across investors with different entry points, and implemented in spreadsheets that often only one person fully understands. The amounts are material and the scrutiny is increasing.
Limited partners, their advisers and their auditors are asking more detailed questions about fee calculation, offset treatment, expense allocation and carried interest mechanics. A manager who can answer those questions immediately and evidentially is in a substantially stronger position than one who needs two weeks and a spreadsheet archaeology exercise.
The Strategy
The economic terms of each vehicle are captured in structured form from the limited partnership agreement and every side letter: fee basis, rate, step downs, offsets, hurdle, catch up, tiering, clawback and distribution ordering. AI is used to extract these terms from the source documents, with each captured term linked back to the clause it derives from and reviewed by the finance and legal teams before it becomes operative.
Calculations are then run against those captured terms rather than against an inherited model. Results are checked for internal consistency, compared against prior periods, and tested for the specific conditions that trigger different treatment. Every output carries an explanation of how it was derived and which clause governs it, and unusual results are flagged for review before they are booked.
Results Driven
Fee and carry calculations become reviewable by people other than their author. That single change removes a concentration risk most firms carry without acknowledging it, and it makes the annual audit and any limited partner enquiry materially easier to service.
Investor confidence benefits too. When an allocator asks how a fee was calculated, the manager can show the clause, the inputs and the result in the same conversation. The transparency itself becomes a point of differentiation, particularly with institutions that have been burned by opacity elsewhere.
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Of fee and waterfall terms linked to the governing clause they derive from.
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Reduction in time to produce a full calculation explanation on request.
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Average reduction in audit queries relating to fee and carry testing.
