Do You Assign All Due Diligence Costs to LP or Deduct Them from Management Fees in Fund Expenses Modeling?
Hi Everyone when modelling fund expenses are you assigning all due diligence costs to LP or do they go from the management fees?
You should assume that they will come from management fees. In general, it’s good practice to reduce the additional expenses to LPs.
As an investor you expect to bear diligence costs, especially
1) you (or your team) should have the significant expertise in your thesis sector to evaluate a deal;
2) an investment isn’t a sure thing - so asking a company to pay for diligence in advance is unethical;
3) with the possible exception of a specific key technology that is completely novel and proprietary which would require a specific expert to evaluate
4) additionally, if the deal is in demand you need to do my diligence quickly…
1) you (or your team) should have the significant expertise in your thesis sector to evaluate a deal;
2) an investment isn’t a sure thing - so asking a company to pay for diligence in advance is unethical;
3) with the possible exception of a specific key technology that is completely novel and proprietary which would require a specific expert to evaluate
4) additionally, if the deal is in demand you need to do my diligence quickly…