# Fee Step-Down

A **fee step-down** is a scheduled reduction in the [management fee](/fees/management-fee.md) defined in the fund's LPA. It typically occurs at the end of the investment period and signals the transition from active deployment to the harvesting phase. The step-down reduces the GP's compensation to reflect the shift from deal origination work to portfolio monitoring and exit management.

## What Changes at a Step-Down

A step-down may modify:

| What changes | Example                                               |
| ------------ | ----------------------------------------------------- |
| Rate only    | 2.0% → 1.5% (same committed-capital basis)            |
| Basis only   | committed capital → invested capital (same 2.0% rate) |
| Both         | 2.0% on committed → 1.5% on invested capital          |

The most common pattern is **both**: a rate reduction combined with a shift from committed capital to invested capital or NAV. This typically reduces the absolute fee amount significantly — both because the rate drops and because the invested-capital basis shrinks as exits occur.

## Trigger Events

Step-down triggers are defined per-fund in the LPA. Common triggers:

* **Date-based** — a fixed number of years after first close (e.g., "5 years after first close").
* **End-of-investment-period** — a specific calendar date, or the earlier of a date or a GP election.
* **Successor-fund trigger** — the step-down fires when the GP's next fund begins its investment period (prevents double-dipping on full management fees across two funds simultaneously).
* **Percentage-deployed trigger** — when a defined percentage of committed capital has been invested (e.g., 80% deployed).

## Impact on LPs

The step-down reduces LP cash outflows for management fees. From an LP perspective, the step-down is an important term to negotiate at subscription — the trigger date, the new rate, and the new basis all materially affect total fee burden over the fund's life.

## Multiple Step-Downs

Some LPAs define two or more step-downs:

1. End of investment period: 2.0% committed → 1.5% invested capital
2. Later event: 1.5% invested → 1.0% invested (e.g., 8 years after first close)

Gildi supports an unlimited number of step-down events per fund, each with its own trigger type, new rate, and new basis.

## How Gildi Handles Step-Downs

Each step-down event is configured in the fund settings with a trigger type and effective date. When the trigger fires (automatically for date-based triggers; manually for event-based triggers requiring GP confirmation), Gildi:

1. Updates the fee rate and basis for the fund.
2. Applies LP-specific overrides (waivers, negotiated post-step-down rates).
3. Flags the change in the GP's activity feed.
4. Recalculates the next fee call amount at the new rate and basis.

No retroactive adjustment is made — the step-down applies from the effective date forward. For the full fee calculation methodology, see the [fees methodology](/methodology/_fees.md).


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