Management Fee Waiver Letter

Summary

This form is a management fee waiver letter, which general partners can use to provide notice to private equity fund limited partners of the amount, timing, and other elements of a fee waiver election and management profits interest program. This template contains practical guidance and drafting notes. This letter is a template that private equity fund general partners can use to provide notice to limited partners of a fund manager's election to waive all or a portion of management fees in exchange for special allocation of fund profits, which receive more favorable tax treatment. Management fees, which are generally paid quarterly or semi-annually, are treated as ordinary income of the investment manager for tax purposes. However, such compensation may be waived in exchange for a "management profits interest", with receipt deferred for three years or more, resulting in treatment as long-term capital gains. The use of a management fee waiver does not increase the amount investors pay for the management fee and has no adverse tax impact on investors. However, it creates the possibility that the investment manager will receive more (or less) compensation than it would have received absent the waiver, as waived amounts are invested in portfolio investments and subject to the risk of profit and loss. For additional context on management fee waivers and a management profits interest programs, see Management Fee Waiver (Private Equity Fund) and Management Agreement for a Private Equity Fund.