The January 15, 2026 “Use of Model Fees” FAQ (the “Model Fee FAQ”) brings renewed focus to a recurring issue in private equity marketing: how to present net performance when historical results reflect fee arrangements that differ from those applicable to new investors. The FAQ is framed around a specific concern: overstatement of net performance. The SEC staff’s analysis is grounded in the Marketing Rule’s general prohibitions and the risk that presenting historical net results—calculated using lower actual fees—could mislead investors who will bear higher anticipated fees.
At a high level, the Model Fee FAQ re-emphasizes a core principle of the Marketing Rule: net performance must not be misleading, and advisers must evaluate whether showing “actual” net performance remains appropriate when marketing to investors who face higher anticipated fees. Where the use of actual net of fees performance is not appropriate, the adviser should consider using a model fee that reflects the fees and expenses the intended audience is expected to bear.
Fee drift across fund vintages:
A common scenario occurs when a sponsor is raising a fund with a higher management fee or carried interest than its previous fund (or funds), while marketing historical funds’ net IRRs and MOICs. Historically, many managers relied on disclosure alone: “Fund V fees will be higher than those reflected here.” The Model Fee FAQ signals that this approach may no longer be sufficient in all cases.
Real-life application:
Fund IV and Fund V each charge a 2.0% management fee. Fund IV is subject to a 10% carried interest, while Fund V is subject to a 20% carried interest. Because Fund IV’s carried interest is materially lower, its reported net IRR reflects significantly less performance-based fee drag than Fund V investors would experience at comparable gross performance levels. Accordingly, presenting Fund IV’s actual net IRR without adjustment would overstate the net returns that Fund V investors could reasonably expect. Under the Model Fee FAQ, the adviser should therefore adjust the presentation—such as by recalculating Fund IV performance using a model carried interest consistent with Fund V’s 20% carry—or otherwise clearly disclose and account for this difference to avoid conveying an overly optimistic impression of expected net returns.
Preferred economics and strategic LPs:
Private equity funds often include founder investors, strategic LPs, or GP affiliates with reduced fees or carry. Actual net performance may therefore reflect economics that are unavailable to most prospective investors.
Real-life application:
Suppose a growth equity fund’s realized net MOIC reflects a large GP commitment and several anchor LPs paying reduced fees. Marketing that net performance to new LPs paying full freight may be misleading if left unadjusted. The Model Fee FAQ supports recalculating net returns using a representative fee structure applicable to the target investor base, rather than relying on legacy economics.
Interim fundraising and step-downs:
Private equity funds commonly feature economics that change materially over time—management fee step-downs after the investment period, shifting expense allocations, changes in fee bases, or the cessation of certain organizational or transaction-related costs. When a fund is marketed mid-investment period, its reported net IRR reflects fees and expenses incurred to date and may not capture material changes to the fund’s economics that will apply over the remainder of the fund’s life, such as management fee step-downs, changes in the fee base, or the ultimate impact of carried interest. If a new investor’s expected fee and return profile over the full life of the fund differs materially from the economics reflected in the reported net IRR, the adviser should evaluate whether presenting modeled net performance more accurately reflects the experience the investor is likely to face.
The core concern from a regulatory perspective is distortion. A snapshot of “actual” net IRR or MOIC at a point in time may overweight early-period economics and fail to reflect the full fee burden or return profile that a new investor is likely to experience. This can create an overly optimistic—or simply incomplete—picture of net performance, particularly if later-stage economics meaningfully diverge from what is embedded in the historical calculation.
What the FAQ does not require:
Importantly, the Model Fee FAQ does not impose a bright-line rule. It does not require model fees in every case, nor does it prohibit using actual net performance. Instead, it reinforces a facts-and-circumstances analysis, grounded in the Marketing Rule’s general prohibitions.
For private equity advisers, the practical takeaway is clear: net performance is no longer a static calculation. When fee structures evolve or differ meaningfully from history, advisers must actively assess whether their net figures still tell a fair story—or whether modeling anticipated fees is necessary to stay onside of the rule.
How Trillium Can Help
Marketing Material Review:
Marketing material review and regulatory commentary are central to Trillium’s ongoing compliance support. Trillium reviews marketing materials for alignment with applicable rules, staff guidance, and enforcement priorities, applying insight gained from evaluating a broad range of private fund marketing practices. This perspective allows Trillium to identify compliance risks, spot emerging issues, and provide practical, market-informed feedback tailored to each client’s approach.
Testing and Surveillance: A core pillar of Trillium’s compliance support is rigorous testing of your firm’s practices in key risk areas—benchmarking them against policies, procedures, and disclosures to uncover gaps, mitigate risk, and drive meaningful improvement.
Regulatory Change Preparedness:
Trillium actively monitors regulatory developments and translates new rules, guidance, and enforcement priorities into clear, actionable impact assessments for your firm. By initiating implementation early, Trillium helps clients stay compliant, reduce execution risk, and remain ahead of regulatory change rather than reacting to it.