Management fee offsets and referral income: what PE firms should check first

The short answer: the LPA definition decides

A management fee offset reduces the management fee that limited partners pay by a percentage of certain fees the adviser, the general partner or their affiliates receive in connection with portfolio companies. Whether a referral reward linked to a portfolio company is caught depends on how the limited partnership agreement defines those fees, who receives the reward and what the firm's conflict policies require. Settle it with fund counsel and your chief compliance officer before any introduction, not after a deal closes.

The timing matters. An operating partner who introduces a portfolio company to SourceX could become entitled to a reward months later, once the company has licensed data and the buyer has paid. By then the deal team, the portfolio company's board and the LPs may all want to know who received it and why. For private equity operating partners, the clean approach is to decide the treatment on day one and write it down.

The three-question fee test

Run these three questions before anyone at the firm registers as a partner.

• Who receives it? The management company, the general partner, the fund itself, an employee personally, or an independent operating advisor working under a consulting agreement.
• What does the LPA call it? Whether the defined term (often fee income, portfolio company fees, special fees or transaction fees) covers only payments made by portfolio companies or reaches any compensation received in connection with a portfolio investment.
• Who has been told? Whether the portfolio company's board, the LPAC or the LPs need notice or consent under the fund documents and the firm's conflicts policy.

If any answer is unclear, pause, ask counsel and record the decision in a memo to file.

Where the rules actually sit

Fee offsets are contractual: each fund's documents set the categories and the percentage, and side letters can change them for particular investors. Securities-law duties that apply to an investment adviser sit on top of the contract; fund counsel will know which apply, and this page does not interpret them. Look in these places.

How the SourceX reward is structured

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward becomes payable only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Details beyond that are set by the signed partner agreement and the program terms, and the rewards page explains the mechanics.

Two features matter for the offset analysis. First, the reward is a share of SourceX's fee and is never deducted from what the portfolio company receives, so no separate charge falls on the company; that is a factual difference from a monitoring or transaction fee charged to the company, but whether your LPA definition still reaches it is a question for counsel. Second, it is compensation tied to a portfolio company transaction that a firm insider may influence, so a broadly worded definition can capture it, and the conflict question exists whichever way the offset question is answered.

Decide the payee early. The partner agreement and the program terms govern who is paid and what tax paperwork is requested. For a US payee, the IRS describes Form W-9 as the way to give a taxpayer identification number to a payer that must file an information return reporting amounts paid to you. Registering the management company rather than an individual, or the reverse, can change both the offset analysis and the paperwork, so ask your tax adviser.

How it applies in common situations

On the last row, FINRA reported that the SEC approved new FINRA Rule 3290 on September 15, 2026, replacing Rules 3270 and 3280, with the effective date to be announced in a Regulatory Notice; until then the existing rules apply. Registered persons should ask their firm's compliance team which rules govern their situation.

Disclosure habits worth adopting before an LP asks

• Write a short memo before the introduction: who registers, who receives any reward, and whether it is offset.
• Tell the portfolio company's board that a referral relationship exists, so the license is judged on its own terms, and consider whether the introducer should step back from the board's vote.
• Follow the LPA on LP reporting and LPAC review, and log the arrangement in the firm's conflicts register.
• Keep the economics visible: the company's license price is unaffected because the reward comes out of SourceX's fee.
• Revisit the memo if the company moves to another vehicle before a deal closes.

Questions to ask fund counsel and your CCO

1. Does our definition of fee income reach third-party payments connected to a portfolio company, or only payments from the company itself?
2. Are operating partners and senior advisors affiliates for offset purposes?
3. What offset percentage applies, and do any side letters change it?
4. Must employees remit outside compensation to the management company?
5. Does this need LPAC review or LP disclosure, and in which report?
6. Which entity should register as the partner and sign the tax forms?
7. Does anyone involved hold a registration that requires pre-clearance?

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

When the simplest answer is to decline

Two clean options exist. The first is to decide the analysis is not worth it for a single introduction: point the company to apply directly, with no referral, and let the license stand or fall on its merits. The second is to register one entity, agree a standing treatment with counsel and apply it to every portfolio introduction.

Ownership structure changes the question. A permanent-capital holding company that charges no management fee has nothing to offset in the LPA sense, though it still has conflict and disclosure questions; the comparison of permanent capital vs private equity sets out how a one-time license plays in each model. Whatever the structure, the company itself must clear the baseline described on the who qualifies page.

Next step

Agree the fee test with counsel first. Then screen the company with the company fit checker and register as a partner under the entity your counsel approved, or have the company apply directly at sourcex.si/apply.