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The "Industry Standard" Fee Warning for Endowments
Adapted for endowment and foundation boards from Chapter 3 of Centimillionaire Strategies by Richard C. Wilson.
One issue I see with wealthy families is costs climbing fast while everyone assures them the fees are industry standard. Often they are far from it. Endowments hear the same line.
Two examples from the book
Legal work. One family office paid an attorney a six-figure sum to set up registration in one state when it arrived in the country. After seeing how simple the work was, it found another provider to keep it registered in 30 states for about a third of that amount each year.
Fund terms. I have heard one apartment investment sponsor describe a 50% profit share after a 6% return as industry standard. Another manager in the same space takes 20% of profits, and only after investors earn 10%. Same asset type, very different deal.
The rule
Be slow to accept "standard" when it comes from the person selling to you. There is a middle range of normal fees for most things. A well-informed, independent person can tell you what it is.
How endowment staff can check
- Ask peers. Business officers and CIOs at similar institutions will often share what they pay.
- Ask your consultant or OCIO for the range they see across clients, not just one number.
- Use published data. Industry surveys and annual reports often show cost ranges.
- Get three quotes on services, every few years.
- Ask the seller to show their math. What exactly is included?
Prioritize alignment
When fees vary this much, prefer structures where the manager or adviser wins when you win. A higher profit share after a high hurdle can be better for you than a low one with no hurdle.
Frequently asked questions
Is a 2% fee and 20% carry still standard for private equity?
Terms vary by manager, size and demand. Ask your consultant for the current range in your strategy.
How do we compare fee structures with different hurdles?
Model each one at a few return levels. The right fit depends on the returns you expect.
Should staff share our fees with other institutions?
Check your confidentiality terms first. Many agreements restrict it.
Sources
- Centimillionaire Strategies, Chapter 3, Richard C. Wilson .
