Fees stack up in layers
Typical layers include a one-off subscription or placement fee, an ongoing management or administration fee, vehicle costs such as legal, audit, custody and regulatory expenses, and a performance fee or carried interest on gains.
A vehicle can also sit on top of a fund that charges its own fees. Two layers of management and performance fees can absorb a large share of any return over a long holding period.
Conflicts to look for
Someone who earns a fee when you invest is not neutral about whether you invest. Watch for placement fees paid by the issuer, affiliated service providers, managers valuing their own assets, and allocation decisions made by a party with an economic interest in the outcome.
Conflicts are not automatically disqualifying, but they must be disclosed, and managed in a way you can verify.
Questions worth asking
What is the all-in cost in the first year and each following year? Who pays whom, and for what? Who values the asset and how independent are they? What happens if the vehicle cannot be funded, or the deal collapses after costs are incurred?
What are my transfer rights, what reporting will I receive and how often, and what is the plan for wind-up? If you cannot get clear written answers, that is itself an answer.