The fund’s accounts are only part of the picture

When a manager considers whether to retain a residual asset, the visible costs are usually those of the fund: administration, audit, legal work and ongoing reporting. But investors may hold their fund interests through separate SPVs, each with its own running costs.

If twenty LPs each invest through an SPV that remains open because of the fund, there may be twenty additional sets of bills. Those costs can sit outside the fund’s accounts while still reducing the eventual outcome for the underlying investors. Asset-holding SPVs, feeders and parallel vehicles can add further layers.

The costs multiply across vehicles and accumulate over time. A small residual portfolio may be sustaining a much larger cost base than the manager sees directly.

A positive asset value can still mean a negative holding outcome

Consider a hypothetical fund costing $25,000 a year to maintain, with twenty LP-owned SPVs each costing a further $3,000 a year. Across the structure, the annual cost is $85,000. Over three years, that is $255,000, compared with $75,000 in the fund’s accounts alone.

Assume the remaining assets ultimately realise $200,000 before these costs. Deducting only the fund’s expenses suggests a positive $125,000 outcome. Including the LP SPVs turns that into a $55,000 shortfall across the structure. An asset can retain value while the net economic benefit of continuing to hold it becomes negative.

Illustrative figures, not cost benchmarks. This example assumes all twenty SPVs relate solely to this fund, costs stay constant and the assets are the only reason the structure remains open. It excludes taxes, transaction and closure costs, and the time value of money.

Count the whole structure.

These starting figures are illustrative. Replace them with the costs attributable to your residual portfolio. Nothing you enter is submitted or stored.

Annual costs across the structure

The fund’s own expenses, counted once.

Additional costs in asset SPVs, feeders or parallel vehicles, excluding the LP SPVs below.

Count vehicles, not investors. Enter 0 if none apply.

Each SPV’s own costs, excluding fund expenses already counted above.

Illustrative cost across the structure over 3 years

$255,000

$85,000 a year across all entered vehicles.

Fund alone
$75,000
Other vehicles
$0
LP-owned SPVs (20)
$180,000

$180,000 in additional costs outside the fund. 3.4× the fund-only total overall.

(Fund annual costs + other vehicles’ annual costs + number of LP SPVs × annual cost per SPV) × years. Assumes constant costs and the same holding period for all vehicles. Use one currency throughout; changing the currency does not convert amounts.

This shows running costs, not guaranteed savings from a sale. Avoid double counting passed-through expenses or costs already deducted from expected proceeds. Consider separately which costs would cease, when each vehicle could close, and any closure costs. It is not a valuation; investment returns, taxes and discounting are not modelled.

Map the costs from the assets to the ultimate investors

  1. Below the fund: identify asset-holding SPVs and any other entities that must remain in place while the investments are held.
  2. At the fund: establish the ongoing administration, audit, reporting and other recurring expenses attributable to the remaining portfolio.
  3. Above and alongside the fund: ask LPs and their administrators about feeders, parallel vehicles and LP-owned SPVs, including costs that are not reported to the manager.

Count each underlying expense once. A fund expense passed through to an LP is not a second cost; that LP’s separate SPV administration bill is. Where a vehicle holds other investments, identify the costs attributable to this holding and whether they would actually fall away after an exit.

Separate the cost of holding from the savings a sale can unlock

A sale may allow the fund to distribute proceeds and begin winding down, which may in turn allow LPs to close their own vehicles. That chain of closures can be a material part of the economic rationale for selling. It is not automatic: other assets, liabilities, reserves or reporting obligations may keep some entities open.

A secondary sale exchanges exposure to future outcomes for an agreed price today. Compare expected future proceeds after the costs of holding across the structure with sale proceeds after transaction expenses, closure costs and any obligations that remain. Reflect the timing and uncertainty of each route, and check whether projected proceeds or reported NAV already include any of the costs being deducted.

The assessment should reflect who bears each cost and who benefits from an exit. The aggregate picture matters, but individual LPs may have different structures and different economics.

A useful next step

If you are considering an exit, assemble a short overview of the remaining holdings, the entities they keep open and your objectives. Our portfolio preparation checklist is a place to start. You can then explore a possible tail-end portfolio acquisition with us.

Further reading on vehicle expenses and cost allocation: the ILPA Principles and Carta’s SPV administration overview. The scenario and calculator here are our own illustrations, not cost estimates from these sources.