Net of Fees

When an investment manager reports a return, that number can be quoted two ways: gross of fees (before costs are removed) or net of fees (after they are removed). The net-of-fees figure is what lands in the family's account — making it the only return number that reflects real economic benefit. Gross figures are useful for evaluating a manager's raw skill, but families typically focus on net returns when measuring whether an investment is actually working for them.

Costs compound just as returns do. A fund charging a meaningful annual management fee plus a performance fee — a share of profits paid to the manager — can quietly erode a large portion of long-term gains. Families often discover this when they build a proper investment policy statement and begin tracking all-in costs across their full asset allocation, including fees buried inside funds-of-funds or hedge funds.

Consider a hypothetical family whose private equity allocation shows a gross return of 18% over a fund's life but nets to 11% after management fees, carried interest (the manager's share of profits), and fund expenses. That gap is not a rounding error — it represents a significant portion of wealth. This is one reason manager selection and due diligence at a family office routinely include a detailed fee analysis before any commitment is made.

A common confusion is treating net-of-fees and net-of-tax as interchangeable. They are separate concepts: net-of-fees strips out manager costs, while net-of-tax further removes the family's tax liability on gains. Families with complex structures typically work with qualified attorneys and CPAs to understand the full net-of-tax, net-of-fees picture across every account and entity.