Alex ZonneveldFees are where a manager’s operational discipline is most visible to allocators, because they’re the one part of the operation that touches every holder’s money directly.
A fund’s fees look simple on a term sheet, perhaps a management fee and a performance fee above a high-water mark, but in practice they involve several calculations for every holder in every period. Management fees accrue on NAV, performance fees depend on each holder’s own high-water mark, introducers may be paid a share, and expenses have to be allocated fairly. Doing this by hand creates errors that can breach regulations even when nobody intended them, and it makes it hard to show allocators clearly what they’ll pay and to whom. Automating fee calculation, using the same reconciled NAV that drives everything else and making each line visible, removes most of that risk and turns fees from a source of questions into a source of confidence.
Why fees are harder than they look
The complexity comes from the combination of time and individual circumstances. A management fee is usually charged on NAV, so it depends on a correct, reconciled valuation, and it has to be accrued for the exact period each holder was in the fund. A performance fee depends on each holder’s high-water mark and on the crystallisation schedule, which we look at in Getting the high-water mark right for every holder. If a placement agent or curator introduced a holder, they may be entitled to a share of the fees, which has to be calculated and paid correctly without being added to the holder’s costs unless that’s been agreed. And fund expenses need to be allocated consistently across holders.
None of this is unusual, but each element is a calculation that has to be done again whenever a holder joins, leaves or changes their position. In a spreadsheet, that means formulas copied across rows, manual adjustments for mid-period subscriptions and a great deal of trust in whoever maintains the file.
The regulatory risk of getting it wrong
In the US, the SEC has made clear over many years that fee and expense practices are a priority, and its 2027 examination priorities again emphasise conflicts of interest. Commentators have noted that using the wrong formula or inputs when calculating fees can breach the Investment Advisers Act regardless of intent, which means an honest mistake in a spreadsheet can still become a regulatory problem. In the most serious cases, such as the SEC’s 2016 action against Hope Advisers over the circumvention of high-water marks, fee practices have been at the centre of fraud allegations.
The practical lesson for emerging managers is that the fee calculation is one of the first things a regulator or an operational due diligence team will want to test, and “we check it carefully in a spreadsheet” isn’t an answer that inspires much confidence.
What allocators want to see
Allocators increasingly want to understand fees before they commit, not just as rates on a term sheet but as a clear picture of what they’ll pay, on what base, and who else is paid along the way. They want to know whether any introducer or placement fee comes out of the manager’s share or is added to their own costs, how the high-water mark applies to them specifically, and whether the calculation is independent of the manager.
A manager who can show all of that, itemised and calculated automatically from an independently reconciled NAV, removes one of the most common sources of friction in due diligence and signals that the operation is designed to treat every holder consistently.
How MakeBanc handles fees
On MakeBanc, management and performance fees are attributes of each manager’s strategy, set by the manager and applied by smart contract logic to every holder individually, using the NAV calculated by a third-party administrator. Allocators see every cost before they sign, itemised as a rate on a stated base, including MakeBanc’s infrastructure fee and any curator or introducer fee, which is shown as paid by the manager rather than added to the holder’s cost. The fee terms remain the manager’s own, and MakeBanc’s role is to apply them exactly as written and make them visible.
Frequently asked questions
Why should fund fees be automated? Because fees involve several calculations for every holder in every period, including management fees on NAV, performance fees against individual high-water marks and introducer shares. Manual calculation creates errors that can breach regulations regardless of intent, while automation applies the same rules consistently and makes fees easier to show to allocators.
What fees do allocators expect to see disclosed? Typically the management fee, the performance fee and how it’s measured, any high-water mark and crystallisation terms, fund expenses, platform or infrastructure fees, and any introducer or placement fees, including who pays them.
Can a fee calculation error be a regulatory breach? Yes. In the US, incorrect fee calculations can violate the Investment Advisers Act even without intent, and fees and conflicts of interest remain a focus of SEC examinations.
Sources
- Hedge Fund Law Report, Fund managers may be liable for incorrect fee calculations, regardless of intent
- Sidley Austin, SEC sets 2027 exam priorities, October 2026
- US SEC, Press release 2016-98, 2016
MakeBanc is a technology platform that provides infrastructure to independent asset managers and connects them with investors. MakeBanc does not provide investment advice, custody services or banking services. Fee terms are set by each strategy operator; MakeBanc applies and displays them.