PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
October 13, 2025
TO: Owen Fischer, Lead Associate, Funds & Asset Management, Calderwood & Harkness LLP Nicholas Stern, Responsible Partner, Funds & Asset Management, Calderwood & Harkness LLP
FROM: Stephen Adler, Working Associate, Funds & Asset Management, Calderwood & Harkness LLP
RE: Pinnacle Venture Fund II LP — Most Favored Nation Election Economic Exposure Analysis
CLIENT: Pinnacle Venture Capital Management LLC (as General Partner of Pinnacle Venture Fund II LP)
I. Executive Summary
The purpose of this memorandum is to analyze the potential economic impact on Pinnacle Venture Fund II LP (the "Fund") if subsequent limited partners exercise most favored nation ("MFN") election rights to adopt reduced management fee rates negotiated by the Fund's anchor investors in connection with the Fund's first closing. As discussed in greater detail below, the scope of MFN-eligible fee concessions, combined with the substantial volume of subsequent limited partner capital anticipated for the Fund, creates meaningful downside exposure to the General Partner's management fee revenue. This memorandum quantifies that exposure across three modeled scenarios and recommends structural measures to mitigate the risk.
Fund Context. Pinnacle Venture Fund II LP is organized as a Delaware limited partnership with a target fund size of $600,000,000 and a hard cap of $750,000,000. The Fund is managed by Pinnacle Venture Capital Management LLC (the "GP"), a Delaware limited liability company and registered investment adviser under the Investment Advisers Act of 1940, co-founded and led by Rajesh Mehta and Claire Dubois. The Fund's investment strategy is focused on early-stage and growth-stage venture capital investments in enterprise software and software-as-a-service ("SaaS") companies, consistent with the strategy deployed in the predecessor fund.
Fund I Track Record. Pinnacle Venture Fund I LP, a 2021 vintage fund with $350,000,000 in aggregate commitments, has generated a net internal rate of return ("IRR") of 24.3% and a net total value to paid-in capital multiple ("TVPI") of 1.58x as of June 30, 2025. This strong track record is expected to attract substantial interest from subsequent limited partners during the Fund's fundraise, increasing the pool of capital eligible for MFN elections and correspondingly increasing the GP's exposure to fee erosion.
Fundraise Timeline. The GP targets a First Close on or about January 15, 2026, with a Final Close deadline of July 15, 2026. Pursuant to the Fund's limited partnership agreement (the "LPA"), the GP is required to deliver a redacted compilation of all side letter terms (the "MFN Side Letter Compilation") to eligible limited partners within fifteen (15) business days following the Final Close. A thirty (30) calendar day MFN election period commences upon delivery of the Compilation, during which eligible subsequent limited partners may elect to adopt any MFN-eligible provision granted to any other limited partner.
Anchor LP Commitments. Three anchor limited partners have committed a total of $165,000,000 to the Fund, representing 27.5% of the $600,000,000 target fund size. Two of the three anchor investors have negotiated reduced management fee rates during the investment period. The remaining $435,000,000 in commitments needed to reach the Fund's target will come from subsequent limited partners, the majority of which are expected to meet the $25,000,000 minimum commitment threshold for MFN eligibility.
Baseline Fee Economics. The Fund's standard management fee is 2.00% per annum calculated on committed capital during the five-year investment period (January 15, 2026 through January 15, 2031). At the full target raise, this generates a baseline annual management fee of $12,000,000. The fee concessions granted to anchor limited partners alone reduce annual management fee revenue by $262,500 per year (to $11,737,500 per year) before any MFN elections by subsequent limited partners.
MFN Exposure. This memorandum models three scenarios to quantify the additional fee erosion that may result from MFN elections by subsequent limited partners. Depending on the proportion of subsequent LP capital that elects reduced fee rates and the specific rate elected, incremental annual fee reductions beyond anchor discounts range from approximately $195,750 per year (in the moderate scenario) to $543,750 per year (in the aggressive scenario), translating to cumulative incremental losses of $978,750 to $2,718,750 over the five-year investment period. Including the baseline anchor discounts, total annual fee reductions range from $458,250 to $806,250 versus the $12,000,000 standard baseline.
This memorandum recommends several structural measures to mitigate the GP's MFN economic exposure, including (a) characterizing the deepest fee concession (granted to a governmental plan) as an Excluded Provision tied to that investor's specific legal and regulatory status, (b) converting ad hoc side letter fee reductions into LPA-level commitment-based fee tiers not subject to MFN election, (c) imposing commitment-matching conditions on MFN elections, and (d) adopting a "full package" election requirement that discourages selective cherry-picking of favorable provisions.
II. Background — Anchor LP Commitments and Fee Concessions
A. Summary of Anchor LP Terms
The Fund's three anchor limited partners and their respective commitment amounts, negotiated management fee rates, and resulting annual fee contributions are summarized in the table below:
Each anchor LP's commitment and fee terms were negotiated in connection with the Fund's first closing process and are set forth in individual side letters executed concurrently with such LP's subscription agreement and joinder to the LPA. CPERS is represented by Whitfield & Gage LLP in connection with its commitment. NEP is represented by Hollander McKee & Stone LLP. Brindoval is represented by Prescott & Langley LLP. Each of these firms has extensive experience in fund formation and side letter negotiations, and each has demonstrated familiarity with MFN election mechanics and the scope of MFN-eligible provisions in prior fund transactions.
B. Fee Impact of Anchor Concessions
The baseline annual management fee at the standard rate, assuming the Fund reaches its $600,000,000 target, is calculated as follows:
$600,000,000 × 2.00% = $12,000,000 per annum
After accounting for the reduced management fee rates negotiated by CPERS and NEP, the anchor-adjusted annual management fee, assuming the remainder of the Fund is raised from subsequent LPs at the standard rate, is calculated as follows:
CPERS: $75,000,000 × 1.75% = $1,312,500
NEP: $50,000,000 × 1.85% = $925,000
Brindoval: $40,000,000 × 2.00% = $800,000
Subsequent LPs (at standard rate): $435,000,000 × 2.00% = $8,700,000
Total anchor-adjusted annual management fee: $11,737,500
The annual management fee reduction attributable solely to anchor LP discounts is therefore:
$12,000,000 − $11,737,500 = $262,500 per annum
This figure represents the "floor" fee reduction — the minimum annual management fee erosion the GP will experience as a result of the anchor negotiations, before any MFN elections by subsequent limited partners. Over the five-year investment period, this floor fee reduction amounts to $1,312,500 in cumulative management fee revenue foregone relative to the standard rate baseline.
It is important to note that the $262,500 annual reduction is modest in absolute terms and as a proportion of total fee revenue (approximately 2.19% of the $12,000,000 baseline). The anchor concessions were commercially justified in the judgment of Rajesh Mehta and Claire Dubois as necessary to secure the commitment of two significant institutional investors — a state public pension system and a university-affiliated endowment — whose participation provides credentialing value and portfolio diversification benefits for the Fund. The concern addressed in this memorandum is not the anchor discounts themselves, but rather their potential amplification through the MFN election mechanism.
C. Non-Fee Anchor Provisions Subject to or Excluded from MFN
In addition to management fee concessions, each anchor LP has negotiated a range of non-fee provisions in its side letter. A brief identification of the material non-fee provisions is set forth below, together with preliminary observations regarding their MFN eligibility:
Cascadia Public Employees' Retirement System (CPERS):
• Excuse rights — CPERS has the right to be excused from Fund investments in portfolio companies that derive a material portion of their revenues from the manufacture or sale of tobacco products or civilian firearms/ammunition, consistent with CPERS's publicly adopted investment policy restrictions.
• FOIA/public records carve-outs — The side letter includes provisions designed to protect Fund confidential information from disclosure under state freedom of information and public records laws to which CPERS is subject as a governmental entity, while acknowledging CPERS's statutory obligation to comply with valid requests.
• Enhanced quarterly reporting — CPERS has negotiated enhanced quarterly reporting deliverables, including sector-level attribution data and disaggregated performance metrics by investment stage, beyond the standard quarterly reporting package provided to all limited partners under the LPA.
• Co-investment rights — CPERS has negotiated the right to co-invest alongside the Fund in portfolio company transactions on a no-management-fee, no-carried-interest basis, subject to the GP's allocation discretion and the co-investment allocation policy described in the LPA.
Northstar Endowment Partners LLC (NEP):
• Advisory committee seat — NEP has been granted a seat on the Fund's limited partner advisory committee ("LPAC"), an Excluded Provision under the MFN framework (see Section III.B below).
• Key-person event notification — NEP has negotiated a provision requiring the GP to provide written notice to NEP within five (5) business days of the occurrence of a key-person event involving either Rajesh Mehta or Claire Dubois, in addition to the standard key-person event notification provisions set forth in the LPA.
• Transfer rights — NEP has the right to transfer all or a portion of its limited partnership interest to affiliated endowment vehicles of Veltrano University without GP consent, provided that the transferee executes a joinder to the LPA and meets applicable anti-money laundering and know-your-customer requirements.
• ERISA representation waiver — The GP has agreed to waive certain representations regarding the Fund's compliance with the "plan assets" regulations under the Employee Retirement Income Security Act of 1974 ("ERISA"), acknowledging NEP's representations that its assets do not constitute plan assets subject to ERISA.
• Co-investment rights — NEP has co-investment rights on terms substantially similar to those granted to CPERS, though the NEP side letter does not explicitly state "no management fee, no carried interest" with respect to co-investment vehicles and instead provides for co-investment on "terms to be determined by the GP at the time of allocation."
Brindoval Family Office Holdings LP (Brindoval):
• Competitive investment opt-out — Brindoval has the right to opt out of any Fund investment in a portfolio company that competes directly with certain SaaS businesses owned or controlled by the Raines family (the principals of Brindoval), as identified on a schedule annexed to the Brindoval side letter.
• Fee netting against carried interest — Brindoval has negotiated a provision under which management fees paid by Brindoval during the investment period will be netted against carried interest distributions otherwise allocable to the GP with respect to Brindoval's limited partnership interest, effectively treating management fees as an advance against carry.
• Information rights — Brindoval has negotiated information rights aligned with the Institutional Limited Partners Association ("ILPA") Reporting Best Practices, including access to standardized reporting templates, fee and expense disclosures, and ESG reporting metrics.
• Co-investment rights — Brindoval has co-investment rights, though the specific economic terms of such co-investments are not specified in the side letter and are subject to the GP's standard co-investment terms at the time of allocation.
MFN Eligibility of Non-Fee Provisions. It is important to note that CPERS's co-investment rights — specifically, the right to co-invest on a no-management-fee, no-carried-interest basis — constitute an MFN-eligible provision that, if elected by subsequent limited partners, would compound the economic impact on the GP beyond the management fee reductions analyzed below. A subsequent LP that elects CPERS's no-fee/no-carry co-investment terms could effectively reduce the GP's economics on co-investment transactions to zero with respect to that LP's co-investment allocation. The analysis in Section IV of this memorandum focuses on management fee exposure from MFN elections, but we flag the co-investment fee/carry waiver as an additional source of economic risk warranting further analysis.
III. MFN Framework — Eligibility and Excluded Provisions
A. MFN Eligibility
Under the MFN provisions set forth in the LPA and reflected in each anchor side letter, the right to make MFN elections is available to limited partners that have committed at least $25,000,000 to the Fund (the "MFN Threshold"). Limited partners whose commitments fall below the MFN Threshold are not eligible to participate in the MFN election process and will not receive the MFN Side Letter Compilation.
All three anchor limited partners meet the MFN Threshold. Brindoval, as the smallest anchor investor at $40,000,000, exceeds the $25,000,000 threshold by $15,000,000. As a practical matter, the MFN Threshold is relevant only to subsequent limited partners, as the anchor investors' side letter terms are already negotiated and finalized.
For purposes of the modeling in Section IV below, we have assumed that all subsequent limited partner commitments in the MFN-eligible pool exceed $25,000,000. This assumption is reasonable given the Fund's target size of $600,000,000 and the typical institutional check sizes for a venture fund of this scale. Based on preliminary indications from Greystone Capital Advisors LLC, the Fund's placement agent, the anticipated subsequent LP base is composed primarily of institutional investors — including pension funds, sovereign wealth funds, endowments, foundations, insurance company general accounts, and large family offices — whose commitment sizes are expected to range from $25,000,000 to $100,000,000. While there may be a small number of commitments below the MFN Threshold (e.g., from smaller family offices or fund-of-funds vehicles), these are expected to represent a de minimis portion of total subsequent LP capital and would not materially affect the modeling results.
It should be noted that the MFN Threshold applies to the aggregate commitment of a limited partner, not to the commitment of affiliated vehicles. The LPA does not currently aggregate commitments of affiliated investors for purposes of the MFN Threshold. Owen and Nicholas may wish to consider whether the LPA should be amended prior to First Close to include an aggregation provision, which could either expand or restrict the MFN-eligible pool depending on the composition of the subsequent LP base.
B. Excluded Provisions
The MFN framework in the LPA identifies certain categories of side letter provisions that are excluded from MFN election (each, an "Excluded Provision"). Specifically, the following provisions cannot be elected by a subsequent LP through the MFN process:
1. Provisions granted to satisfy specific legal, regulatory, or tax requirements of the limited partner to which such provisions were originally granted (e.g., FOIA and public records carve-outs for governmental plans such as CPERS; representations and acknowledgments regarding the inapplicability of ERISA to a particular LP's investment).
2. Advisory committee seats, including the LPAC seat granted to NEP.
3. Portfolio company board observer rights.
4. Any other term or provision that the GP reasonably determines is specific to the legal, regulatory, or tax status of the limited partner that originally received such term or provision and is not applicable to the electing limited partner.
Fee Concessions Are MFN-Eligible. Critically, management fee concessions are not listed among the Excluded Provisions and are therefore MFN-eligible. This is the primary source of economic exposure analyzed in this memorandum. The LPA's silence on fee concessions as Excluded Provisions is consistent with the general market practice in Delaware fund formation, where MFN provisions are typically drafted to encompass fee terms unless a specific carve-out is negotiated.
Co-Investment Fee/Carry Waivers Are MFN-Eligible. Similarly, co-investment terms — including the no-management-fee, no-carried-interest co-investment terms negotiated by CPERS — are not listed as Excluded Provisions and are therefore MFN-eligible. As noted in Section II.C, this creates an additional vector of economic exposure beyond management fees.
Excuse Rights and Opt-Out Provisions. The treatment of excuse rights and competitive opt-out provisions under the MFN framework requires case-by-case analysis. CPERS's excuse rights (tobacco/firearms) are directly linked to CPERS's publicly adopted investment policy restrictions as a governmental plan and are likely excludable under Category 1 or Category 4 of the Excluded Provisions framework. By contrast, Brindoval's competitive investment opt-out — which is tied to the Raines family's private business interests rather than to any legal or regulatory requirement applicable to Brindoval — presents a less clear case for exclusion. If a subsequent LP sought to elect Brindoval's competitive opt-out right, the GP would need to evaluate whether the provision is "specific to the legal, regulatory, or tax status" of Brindoval within the meaning of Category 4. In our view, the competitive opt-out is more accurately characterized as a commercial accommodation than a regulatory necessity, and the GP's ability to exclude it from MFN election is uncertain.
C. Timing
The MFN election process is governed by the following timeline:
• Final Close: July 15, 2026 (the deadline for the admission of additional limited partners to the Fund).
• MFN Side Letter Compilation: The GP is required to prepare and deliver to each MFN-eligible limited partner a redacted compilation of all side letter provisions granted to any limited partner, excluding (a) the identity of the limited partner to which each provision was originally granted and (b) Excluded Provisions. The Compilation must be delivered within fifteen (15) business days after the Final Close.
• MFN Election Period: Each MFN-eligible limited partner has thirty (30) calendar days following delivery of the Compilation to submit its MFN election notice to the GP, identifying the specific provisions it elects to adopt.
The practical implication of this timeline is significant for budget planning purposes. Assuming the Final Close occurs on July 15, 2026, the Compilation would be delivered on or about August 5, 2026 (fifteen business days later), and the MFN election period would close on or about September 4, 2026. The GP will therefore not have full visibility into the extent of MFN fee elections — and thus the Fund's actual management fee revenue for the first year of the investment period — until nearly eight months after the targeted First Close and approximately two months after the Final Close. During this period, the GP should budget conservatively, assuming a worst-case fee scenario consistent with Scenario 1 in Section IV.B below.
Additionally, we note that the LPA does not specify a deadline by which the GP must acknowledge or implement MFN elections. As a matter of best practice, we recommend that the GP confirm receipt of each MFN election notice within five (5) business days and implement elected provisions (including adjusted fee calculations) within thirty (30) days of the close of the MFN election period, with appropriate retroactive adjustments to fees charged from the date of such LP's admission to the Fund. The fee administrator, Meridian Fund Services LLC, should be apprised of this timeline and should prepare to process retroactive fee adjustments as necessary.
IV. Scenario Analysis — Economic Impact of MFN Fee Elections
A. Modeling Assumptions
The following assumptions apply across all three scenarios modeled in this Section IV:
• Target fund size: $600,000,000.
• Anchor LP commitments: $165,000,000 (as set forth in Section II.A).
• Subsequent LP commitments needed to reach target: $435,000,000 ($600,000,000 minus $165,000,000).
• Standard management fee: 2.00% per annum on committed capital during the investment period (January 15, 2026 through January 15, 2031).
• Fund size assumption: All modeling assumes the Fund reaches its $600,000,000 target. Sensitivity to different raise amounts is addressed in Section IV.F.
• Post-investment-period fee: The management fee during the post-investment period reverts to 2.00% per annum calculated on invested capital (rather than committed capital) for all limited partners. The anchor side letters do not differentiate the post-investment-period fee, and all anchor LPs revert to the standard post-investment-period fee structure set forth in the LPA. Accordingly, post-investment-period fees are not modeled in this analysis.
• Brindoval fee netting provision: For purposes of this analysis, the Brindoval fee netting provision (which nets management fees paid by Brindoval against carried interest distributions otherwise allocable to the GP with respect to Brindoval's limited partnership interest) is excluded from fee-rate modeling. The netting provision affects the timing and offset of fee payments against carry distributions, but does not alter the stated management fee rate applicable to Brindoval's commitment. It therefore does not change the management fee rate that appears in the MFN Side Letter Compilation or the rate available for MFN election. However, if a subsequent LP elects Brindoval's netting provision through the MFN process, the netting would apply to that LP's fees and carry as well, creating additional economic complexity that is beyond the scope of this analysis.
• MFN eligibility: Each scenario assumes that all subsequent LP commitments exceed the $25,000,000 MFN Threshold, such that all subsequent LP capital is MFN-eligible. As discussed in Section III.A, this assumption is reasonable given the Fund's institutional investor base and anticipated commitment sizes.
B. Scenario 1 — Aggressive Election: 50% of Subsequent LPs Elect CPERS Rate (1.75%)
Scenario 1 models the most severe plausible fee erosion from MFN elections. Under this scenario, 50% of subsequent LP capital elects into the 1.75% management fee rate granted to CPERS, while the remaining 50% of subsequent LP capital remains at the standard 2.00% rate.
Assumptions:
• MFN-electing subsequent LP capital: $435,000,000 × 50% = $217,500,000 at 1.75%
• Non-electing subsequent LP capital: $435,000,000 × 50% = $217,500,000 at 2.00%
Annual Management Fee Calculation:
CPERS: $75,000,000 × 1.75% = $1,312,500
Northstar Endowment Partners: $50,000,000 × 1.85% = $925,000
Brindoval Family Office Holdings: $40,000,000 × 2.00% = $800,000
Electing subsequent LPs: $217,500,000 × 1.75% = $3,806,250
Non-electing subsequent LPs: $217,500,000 × 2.00% = $4,350,000
Total annual management fee: $11,193,750
Fee Impact Analysis:
• Annual fee reduction vs. $12,000,000 standard baseline: $806,250 per year
• Annual fee reduction vs. $11,737,500 anchor-adjusted baseline: $543,750 per year (incremental impact of MFN elections beyond anchor discounts)
• Five-year investment period cumulative reduction vs. standard baseline: $806,250 × 5 = $4,031,250
• Five-year investment period incremental cumulative reduction beyond anchor discounts: $543,750 × 5 = $2,718,750
This scenario represents the upper bound of plausible fee erosion. It assumes a high rate of MFN election (50% of subsequent LP capital) and that all electing LPs choose the deepest available discount (the 1.75% CPERS rate). While a 50% election rate may seem aggressive, it is not unprecedented in the current fundraising environment, particularly for venture funds with strong track records that attract sophisticated institutional investors with experienced fund formation counsel. The fact that all three anchor LPs are represented by well-known fund formation practices — Whitfield & Gage, Hollander McKee & Stone, and Prescott & Langley — suggests that subsequent LPs and their counsel will be similarly attentive to MFN opportunities.
A key factor in whether Scenario 1 materializes is whether the 1.75% CPERS rate can be characterized as an Excluded Provision (see Section V.A.1 below). If the CPERS fee reduction is successfully excluded from MFN election, the deepest available rate becomes the 1.85% Northstar rate, and Scenario 1 (in its current form) becomes impossible.
C. Scenario 2 — Moderate Election: 30% of Subsequent LPs Elect Northstar Rate (1.85%)
Scenario 2 models a more moderate outcome in which (a) the GP successfully characterizes the CPERS management fee reduction as an Excluded Provision linked to CPERS's governmental plan status, thereby removing the 1.75% rate from MFN eligibility, and (b) 30% of subsequent LP capital elects into the 1.85% rate granted to Northstar Endowment Partners.
Assumptions:
• The CPERS 1.75% fee reduction is treated as an Excluded Provision and is not available for MFN election. The basis for this treatment would be the characterization of the fee reduction as a provision "granted to satisfy specific legal, regulatory, or tax requirements" of CPERS as a governmental plan, or as a provision "specific to the legal, regulatory, or tax status" of CPERS within the meaning of Category 4 of the Excluded Provisions framework. See Section V.A.1 for a detailed discussion of this argument and its associated risks.
• MFN-electing subsequent LP capital: $435,000,000 × 30% = $130,500,000 at 1.85%
• Non-electing subsequent LP capital: $435,000,000 × 70% = $304,500,000 at 2.00%
Annual Management Fee Calculation:
CPERS: $75,000,000 × 1.75% = $1,312,500
Northstar Endowment Partners: $50,000,000 × 1.85% = $925,000
Brindoval Family Office Holdings: $40,000,000 × 2.00% = $800,000
Electing subsequent LPs: $130,500,000 × 1.85% = $2,414,250
Non-electing subsequent LPs: $304,500,000 × 2.00% = $6,090,000
Total annual management fee: $11,541,750
Fee Impact Analysis:
• Annual fee reduction vs. $12,000,000 standard baseline: $458,250 per year
• Annual fee reduction vs. $11,737,500 anchor-adjusted baseline: $195,750 per year (incremental impact of MFN elections beyond anchor discounts)
• Five-year investment period cumulative reduction vs. standard baseline: $458,250 × 5 = $2,291,250
• Five-year investment period incremental cumulative reduction beyond anchor discounts: $195,750 × 5 = $978,750
Scenario 2 reflects a significantly more favorable outcome for the GP. The combination of (a) removing the deepest fee concession from MFN eligibility and (b) assuming a moderate election rate produces incremental annual MFN exposure of less than $200,000 per year — an amount that, while not immaterial, is unlikely to have a material impact on the GP's ability to fund operations, retain investment professionals, or execute the Fund's investment strategy. We consider this scenario to be the most commercially realistic outcome, provided the GP takes the recommended steps to structure the CPERS fee reduction as an Excluded Provision.
D. Scenario 3 — Blended Election: Mix of Rate Elections
Scenario 3 models an intermediate outcome in which both the 1.75% CPERS rate and the 1.85% Northstar rate are MFN-eligible, and subsequent LPs elect into both rates at varying adoption levels.
Assumptions:
• 20% of subsequent LP capital ($435,000,000 × 20% = $87,000,000) elects into the 1.75% CPERS rate.
• 25% of subsequent LP capital ($435,000,000 × 25% = $108,750,000) elects into the 1.85% Northstar rate.
• 55% of subsequent LP capital ($435,000,000 × 55% = $239,250,000) remains at the standard 2.00% rate.
This scenario reflects a plausible distribution of MFN election behavior in which some subsequent LPs opt for the deepest available discount, others choose a less aggressive election, and a slight majority decline to elect any fee reduction (whether because their commitment falls below the MFN Threshold, because they determine that the burden of accepting associated provisions outweighs the fee benefit, or because they simply do not prioritize the MFN election process).
Annual Management Fee Calculation:
CPERS: $75,000,000 × 1.75% = $1,312,500
Northstar Endowment Partners: $50,000,000 × 1.85% = $925,000
Brindoval Family Office Holdings: $40,000,000 × 2.00% = $800,000
Subsequent LPs at 1.75%: $87,000,000 × 1.75% = $1,522,500
Subsequent LPs at 1.85%: $108,750,000 × 1.85% = $2,011,875
Subsequent LPs at 2.00%: $239,250,000 × 2.00% = $4,785,000
Total annual management fee: $11,356,875
Fee Impact Analysis:
• Annual fee reduction vs. $12,000,000 standard baseline: $643,125 per year
• Annual fee reduction vs. $11,737,500 anchor-adjusted baseline: $380,625 per year (incremental impact of MFN elections beyond anchor discounts)
• Five-year investment period cumulative reduction vs. standard baseline: $643,125 × 5 = $3,215,625
• Five-year investment period incremental cumulative reduction beyond anchor discounts: $380,625 × 5 = $1,903,125
Scenario 3 falls, as expected, between the aggressive and moderate scenarios. The blended election results in annual fee erosion that is material but manageable: the GP retains approximately $11.36 million in annual management fee revenue, representing a 5.36% reduction from the $12,000,000 standard baseline and a 3.24% reduction from the $11,737,500 anchor-adjusted baseline. Over the five-year investment period, the cumulative reduction of approximately $3.22 million represents a meaningful but not debilitating impact on the GP's economics.
E. Summary Table — All Scenarios
The following table summarizes the fee impact across all three modeled scenarios, together with the anchor-discount-only baseline for comparison:
The range of potential outcomes demonstrates the importance of the GP's approach to structuring Excluded Provisions and MFN election conditions. The difference between Scenario 1 (aggressive) and Scenario 2 (moderate) in incremental annual fee erosion is $347,625 per year, or $1,738,125 over the five-year investment period. This differential is almost entirely attributable to (a) whether the 1.75% CPERS rate is available for MFN election and (b) the proportion of subsequent LP capital that elects a reduced rate.
F. Sensitivity — Fund Raise Exceeds Target
If the Fund's fundraise exceeds the $600,000,000 target and reaches the $750,000,000 hard cap, the MFN-eligible pool of subsequent LP capital increases significantly. At the hard cap, subsequent LP commitments would total $585,000,000 ($750,000,000 minus $165,000,000 in anchor commitments), compared to $435,000,000 at the target size.
To illustrate the impact, we apply the Scenario 1 assumptions (50% of subsequent LP capital at 1.75%) to the hard cap:
• Baseline annual management fee at hard cap: $750,000,000 × 2.00% = $15,000,000
• Anchor-adjusted fees (unchanged): CPERS ($1,312,500) + NEP ($925,000) + Brindoval ($800,000) = $3,037,500
• Electing subsequent LP capital: $585,000,000 × 50% = $292,500,000 at 1.75% = $5,118,750
• Non-electing subsequent LP capital: $585,000,000 × 50% = $292,500,000 at 2.00% = $5,850,000
• Total annual management fee at hard cap: $3,037,500 + $5,118,750 + $5,850,000 = $14,006,250
• Alternatively calculated as: $3,037,500 + ($585,000,000 × 50% × 1.75%) + ($585,000,000 × 50% × 2.00%) = $3,037,500 + $5,118,750 + $5,850,000 = $14,006,250
• Anchor-adjusted baseline at hard cap (no MFN elections): $3,037,500 + ($585,000,000 × 2.00%) = $3,037,500 + $11,700,000 = $14,737,500
• Total annual management fee with MFN elections at hard cap: $14,006,250
• Annual reduction vs. $15,000,000 baseline at hard cap: $993,750
• Annual reduction vs. anchor-adjusted baseline at hard cap: $731,250
The larger the fund raise, the greater the absolute dollar exposure to MFN elections, because the volume of MFN-eligible subsequent LP capital increases while the anchor LP commitments (and their associated fee concessions) remain fixed. At the hard cap, the GP faces nearly $1 million per year in annual fee erosion under the aggressive Scenario 1 assumptions, compared to approximately $806,000 per year at the target size. This underscores an important, and somewhat counterintuitive, dynamic: a more successful fundraise amplifies MFN exposure. While the GP benefits from a larger asset base and higher total fee revenue, the proportional impact of MFN elections is magnified because a larger share of total fund capital is subject to potential fee reduction.
Key Takeaway: MFN exposure scales with fund size and the proportion of subsequent LP capital that is MFN-eligible. The GP should calibrate its MFN mitigation strategy with reference to both the target raise and the hard cap.
V. Recommendations — Mitigating MFN Economic Exposure
Based on the analysis set forth above, we recommend the following structural measures to mitigate the GP's MFN economic exposure. These recommendations should be discussed with Nicholas Stern and, where appropriate, presented to Rajesh Mehta and Claire Dubois for commercial input.
A. Structuring Excluded Provisions Broadly
1. CPERS Fee Concession as an Excluded Provision
The most impactful single step the GP can take to reduce MFN fee exposure is to characterize the CPERS management fee reduction (from 2.00% to 1.75%) as a provision "granted to satisfy specific legal, regulatory, or tax requirements" of CPERS, or as a provision "specific to the legal, regulatory, or tax status" of CPERS, thereby rendering it an Excluded Provision that is not available for MFN election.
Basis for Exclusion. CPERS is a governmental plan as defined in Section 414(d) of the Internal Revenue Code, exempt from federal income taxation under IRC § 115. CPERS's investment in the Fund imposes a range of regulatory and administrative burdens on the GP that are unique to governmental plan investors, including:
• Compliance with state freedom of information and public records laws, which require the GP to cooperate with CPERS's disclosure obligations and may result in disclosure of Fund information that would otherwise be confidential;
• Accommodation of CPERS's investment policy restrictions (e.g., excuse rights for tobacco and firearms investments), which limit the GP's discretion in deploying CPERS's committed capital;
• Enhanced reporting requirements, including sector-level attribution and disaggregated performance data, that exceed the standard reporting obligations under the LPA and impose additional administrative costs on the GP and its fund administrator; and
• The general reputational and operational burden of accommodating a governmental plan investor with public accountability obligations, elected board oversight, and politically sensitive investment mandates.
The fee reduction granted to CPERS can be framed as consideration for these additional obligations — effectively, as compensation to CPERS for the regulatory burdens its investment imposes on the GP, or equivalently, as a discount reflecting the GP's recognition that the "cost" of a governmental plan LP is higher than that of a private institutional investor.
Delaware Fund Practice. There is precedent in Delaware fund side letter practice for GPs to exclude fee concessions granted to governmental plans from MFN eligibility by characterizing them as linked to the regulatory burdens associated with governmental plan investments. The argument is that the fee reduction is not a standalone commercial concession but rather an integral component of a package of provisions that, taken together, address the specific legal, regulatory, and administrative requirements of the governmental plan LP. Under this characterization, the fee reduction is inseparable from the FOIA carve-outs, excuse rights, and enhanced reporting requirements granted to CPERS, and the entire package constitutes Excluded Provisions under Category 1 or Category 4 of the MFN framework.
Risk Assessment. This characterization is not without risk. Aggressive LPs and their counsel — including, notably, Prescott & Langley LLP, which represents Brindoval and has specifically requested broad MFN rights as part of the Brindoval side letter negotiation — may challenge the exclusion of fee concessions from MFN eligibility. The standard market understanding is that MFN provisions are intended to make fee terms available to subsequent investors, and an effort to exclude the deepest fee concession from MFN election may be viewed as contrary to the spirit of the MFN framework. If challenged, the GP would need to defend its characterization as a "reasonable determination" under Category 4 of the Excluded Provisions framework, which imposes a reasonableness standard that the GP controls but that could be tested in the context of an LP dispute or, in an extreme case, litigation.
Recommended Approach. We recommend the following implementation steps:
(a) Include specific language in the CPERS side letter explicitly tying the fee reduction to CPERS's status as a governmental plan and the concomitant regulatory obligations that CPERS's investment imposes on the GP. For example:
"The management fee reduction set forth in this Section [__] is granted in consideration of the additional regulatory and administrative obligations imposed on the General Partner in connection with the Limited Partner's status as a governmental plan within the meaning of Section 414(d) of the Internal Revenue Code, including without limitation the Limited Partner's obligations under applicable freedom of information and public records laws, the Limited Partner's investment policy restrictions, and the enhanced reporting requirements set forth in Section [__] of this Side Letter."
(b) Include a parallel statement in the MFN procedures letter (or in the MFN clause of each subsequent LP side letter) confirming that provisions granted in connection with an LP's governmental plan status — including fee reductions linked thereto — are Excluded Provisions not available for MFN election.
(c) Ensure that the MFN Side Letter Compilation, when prepared, does not include the CPERS fee reduction among the electable provisions.
Even if this argument is accepted only for the CPERS rate, it would shift the MFN "floor" rate from 1.75% to 1.85% (the Northstar rate), thereby substantially reducing the GP's fee exposure. As demonstrated in the scenario analysis, the difference between a 1.75% MFN floor and a 1.85% MFN floor is significant: under the blended Scenario 3 assumptions, removing the 1.75% rate from MFN eligibility would eliminate $87,000,000 × (1.85% − 1.75%) = $87,000 in annual fee erosion from those LPs that would otherwise have elected the CPERS rate, plus any deterrent effect on LPs that might have elected a higher rate.
2. Northstar Fee Concession
The NEP management fee reduction (from 2.00% to 1.85%) is tied to NEP's status as a university-affiliated endowment vehicle. The regulatory nexus for exclusion is less obvious than for CPERS: while university endowments are typically organized as tax-exempt entities under IRC § 501(c)(3) and may be subject to certain governance requirements imposed by their university affiliates, they do not generally impose the same type of regulatory burdens on fund managers as governmental plans (e.g., no FOIA obligations, no publicly mandated investment restrictions).
We could attempt to characterize the NEP fee reduction as linked to NEP's governance and fiduciary obligations as a university-affiliated endowment, including NEP's transfer rights (which are specifically tied to affiliated Veltrano University endowment vehicles) and NEP's key-person event notification requirements. However, in our assessment, this argument is significantly weaker than the CPERS exclusion argument and is unlikely to be accepted by subsequent LPs or their counsel. The transfer rights and key-person notification are more naturally understood as commercial accommodations than as provisions tied to NEP's legal or regulatory status.
Recommendation. We recommend accepting the 1.85% NEP rate as the effective MFN floor if the CPERS exclusion argument succeeds. The GP should not attempt to exclude the NEP fee reduction from MFN eligibility, as doing so would risk undermining the credibility of the CPERS exclusion argument and would likely provoke a negative reaction from subsequent LPs and their counsel.
3. Non-Fee Provisions
With respect to non-fee provisions in the anchor side letters, we recommend that the GP take the following steps to maximize the scope of Excluded Provisions:
(a) Ensure that each anchor side letter includes a clear statement identifying which provisions are granted due to the specific legal, regulatory, or tax status of the relevant LP.
(b) Draft broad Excluded Provisions language in the MFN procedures letter, including specific examples of excluded categories (e.g., FOIA carve-outs, ERISA-related provisions, excuse rights tied to regulatory investment restrictions).
(c) Include in each anchor side letter's MFN clause a cross-reference to the Excluded Provisions framework, confirming the GP's authority to make reasonable determinations regarding the applicability of Excluded Provision treatment.
B. Commitment-Based Fee Tiers as Alternative to Flat discounts
An alternative approach — and potentially the most effective structural solution — would be to restructure the management fee concessions as commitment-based tiers in the LPA itself, rather than granting ad hoc fee reductions in individual side letters. Under this approach, the LPA would establish a tiered fee schedule in which the management fee rate decreases as a function of commitment size:
Under this structure, CPERS (at $75,000,000) would receive the 1.75% rate as a function of the LPA's tiered fee schedule, not as a side letter concession. Similarly, NEP (at $50,000,000) would receive the 1.85% rate based on its commitment level. Brindoval (at $40,000,000) would remain at the standard 2.00% rate, consistent with its current terms.
MFN Implications. Commitment-based fee tiers established in the LPA are structural terms available to all limited partners at the corresponding commitment level. They are not side letter concessions and are therefore not subject to MFN election. An LP committing $30,000,000 would not be able to elect into the 1.75% or 1.85% rate through the MFN process, because those rates are LPA-level terms conditioned on commitment thresholds, not side letter provisions that can be adopted regardless of commitment size.
Advantages. This approach has several significant advantages:
(a) It eliminates MFN fee exposure entirely with respect to the tiered rates, because the fee concessions are embedded in the LPA rather than in side letters.
(b) It provides a transparent, objective basis for fee differentiation that is defensible to all limited partners.
(c) It aligns with increasing investor expectations for standardized, non-discriminatory fee structures.
(d) It simplifies the MFN Side Letter Compilation by removing fee terms from the universe of electable provisions.
Limitations. The LPA's fee structure would need to be finalized before or at the First Close on January 15, 2026. This requires coordination with Rajesh Mehta and Claire Dubois to determine whether commitment-based fee tiers are commercially acceptable and whether the proposed tier breakpoints and rates are consistent with the GP's fundraising strategy. Additionally, the tier structure would need to be disclosed to all prospective limited partners during the fundraise, which could affect commitment dynamics — some LPs might increase their commitments to reach a lower fee tier, while others might view the tiered structure as evidence that fee negotiation is possible and seek additional concessions.