# Fee Offset

A **fee offset** (also called a **management fee offset**) is a credit applied against the LP-paid [management fee](/fees/management-fee.md) whenever the GP earns fees directly from portfolio companies. The LPA specifies what percentage of third-party fees the GP must credit back to LPs.

## Why Fee Offsets Exist

GPs may earn substantial fees from portfolio companies — for deal sourcing, board representation, monitoring, M\&A advisory, and other services. Without an offset provision, these fees would be pure GP profit on top of the management fee that LPs already pay. Offsets ensure LPs share in the portfolio company fee income, reducing their net fee burden.

## Offset Percentage

The LPA states the offset percentage. Common structures:

| Offset % | Effect                                                                            |
| -------- | --------------------------------------------------------------------------------- |
| **100%** | Every euro of third-party fee received fully reduces the next management fee call |
| **80%**  | 80 cents reduces the fee; GP retains 20 cents of every euro earned                |
| **50%**  | Fee is split equally — LP benefit is halved                                       |

100% offsets are most LP-favorable and increasingly standard for buyout funds. Lower offsets (50–80%) are more common in smaller or more GP-favorable fund structures.

## Types of Fees Subject to Offset

| Fee type                                    | Description                                         |
| ------------------------------------------- | --------------------------------------------------- |
| [Deal fee](/fees/deal-fee.md)               | One-time advisory fee at investment close           |
| [Transaction fee](/fees/transaction-fee.md) | Fee on M\&A, refinancing, or other corporate events |
| Monitoring fee                              | Annual fee for ongoing board / advisory services    |
| Director fee                                | Compensation for GP-nominated board seats           |

The LPA specifies which fee types are subject to offset. Monitoring fees are almost always included; director fees may or may not be, depending on the negotiation.

## Credit Accumulation and Carry-Forward

Fee offset credits accumulate as a running balance. At each fee call:

```
Fee call amount after offset = Gross management fee − Fee offset credit applied

If credit > gross fee: surplus carries forward to the next period
```

Credits do not expire — they carry forward until fully applied or the fund wind-down, at which point any remaining credit is returned to LPs as a distribution.

## How Gildi Tracks Fee Offsets

Gildi maintains a fee-offset ledger per fund. Each credit entry records:

* Source fee type and amount
* Portfolio company name
* Date received
* Offset percentage applied
* Net credit amount

At each fee call, Gildi applies the accumulated credit against the gross fee and records the net amount called. The fee notice shows LPs both the gross fee and the offset credit, so the net call is transparent.

For the full calculation, see the [fees methodology](/methodology/_fees.md).


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