Performance fees align the Investment Committee's interests with investor outcomes by providing compensation only when the fund generates profits above return of capital.
Calculation Basis
The performance fee applies to realized profits after 100% return of invested capital. If the fund distributes $100,000 to return your capital and then distributes an additional $50,000 in profit, the performance fee is $5,000 (10% of the $50,000 profit).
European Waterfall Structure
Esinli uses a European-style (whole-fund) waterfall, meaning performance fees are calculated based on total fund performance rather than deal-by-deal. This approach benefits investors by ensuring early exits cannot trigger performance fees before the fund achieves overall profitability.
Preferred Return
Some fund-of-funds include preferred returns (hurdle rates), requiring the fund to exceed a minimum return threshold before performance fees apply. Esinli's structure does not include a preferred return—performance fees begin immediately after return of capital.
Distribution Priority
All distributions follow this sequence:
- Return of invested capital to investors (no performance fee)
- Profits to investors and general partner according to the 90/10 split
- Continued 90/10 split on all subsequent distributions
Performance Fee Timing
Performance fees are deducted from distributions as they occur. When portfolio companies exit and underlying funds distribute proceeds, Esinli calculates whether return of capital has been achieved and applies the performance fee split accordingly.
Clawback Provisions
If early distributions trigger performance fees but later losses reduce overall fund profitability, clawback provisions may require the general partner to return excess performance fees. This protects investors from overpaying performance fees based on early results that don't reflect final outcomes.
Reporting Transparency
Quarterly reporting shows cumulative performance fee accruals based on unrealized valuations, while annual reporting confirms actual performance fees paid from realized distributions.
This is illustrative only. Specific terms are governed by the limited partnership agreement for each fund vintage.