Is '2 and 20' a useful way to compare private funds?

Not on its own. The fee base, expense treatment, hurdle and carry mechanics can make identical headline terms produce very different net outcomes.

How can a CXO check if performance figures are being presented favorably?

Ask for net-of-fee, net-of-carry returns across the manager's full track record and compare on a like-for-like time basis across managers.

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Management Fee, Carry and Net Returns for CXOs

Q: What is the most useful fee-related diligence question?

Ask what the fee has actually bought investors historically, on a net basis, across more than one market cycle.

Aryan Singh1 min readGP Diligence

Why Net Outcomes Matter More Than Headline Fees

A senior executive does not need to memorize every clause in a private fund waterfall to ask better questions. But it is critical to understand that management fee, carry, fund expenses and timing together determine the gap between gross and net returns.

Two funds quoting identical headline terms can produce very different investor outcomes once fee base, expense pass-through and distribution timing are factored in. The label '2 and 20' tells an executive almost nothing about the actual net result.

The Discipline of Comparing Fees to Value Created

The discipline is simple: compare fees against access, process quality, portfolio construction and realized track record. Then test whether the manager's incentives truly reward durable investor outcomes rather than just asset gathering or cosmetic IRR presentation.

A CXO evaluating a proposal should ask what specifically the fee is paying for: origination capability, operational value-add, network access, or simply the administration of a pooled vehicle. The answer should be concrete, not aspirational.

Reading Cosmetic Performance Presentation

Headline IRR figures can be flattered by early timing effects, selective use of gross-versus-net figures, or by presenting only a subset of a manager's fund history. A CXO should ask specifically for net-of-fee, net-of-carry figures across the full track record, not just the strongest vintage.

Requesting a like-for-like comparison across managers, using the same net basis and the same time period, is one of the simplest ways to cut through fee and performance marketing.

Where Net Returns Actually Begin

Net returns are where allocator reality begins. Fee terms only become meaningful when they are linked to actual behavior, risk discipline and the level of selectivity the manager demonstrates across cycles.

The most useful diligence question is rarely 'what is the fee,' but 'what has this fee actually bought investors historically, on a net basis, across more than one market cycle.'

Key takeaways

Identical headline fee terms can still produce very different net outcomes across funds.
Ask specifically what the fee is paying for, in concrete rather than aspirational terms.
Always request net-of-fee, net-of-carry figures across a manager's full track record, not a selected vintage.
Net returns, not headline terms, are the real basis for fee evaluation.

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