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From U.S. law firm Seward & Kissel.
While the concept of a pass-through expense model is most often associated with multi-strategy alternative
investment funds, this expense structure is beginning to gain wider traction among other managers as well,
depending on various considerations.
What is a pass-through expense structure?
In the most common iteration of a pass-through expense structure, the fund will bear not only the fund's
expenses (e.g., legal, audit and trading), but also most if not all of the overhead costs that would generally be
paid by the manager (e.g., salaries and bonuses of firm personnel, and other overhead costs). This is usually in
addition to, but sometimes in lieu of, the management fee charged by the manager.
The following are some variations on the basic pass-through model that managers may wish to consider:
• Partial Pass-Through: The fund only pays for certain expenses that would otherwise be borne by the
manager, such as certain firm personnel dedicated to a particular fund or strategy.
• Fixed Cap Pass-Through: Any manager expenses to be paid by the fund are capped at a certain
percentage, and the cap is typically calculated on a quarterly basis.
• Tiered Pass-Through: As the fund reaches different AUM thresholds, the percentage of expenses that
are passed through changes.
• Fee Offsets: In some cases, an expense pass-through may offset either the man...................... To view our full article Click here
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