Accessing Private Markets: What Does It Cost?
Year: 2024
Type: article
Abstract: This paper provides the first empirical analysis of the costs of financial intermediation across private markets. I access a proprietary dataset, develop a novel model, and estimate that it costs investors $0.05 to $0.26 per dollar committed over funds’ lifetimes. The corresponding fee drag on gross-to-net TVPI is 0.1x to 0.7x and 5% to 8% in annualized terms. The results demonstrate cost economies of scale in which larger funds cost less in management fees. Finally, the fraction of costs attributable to non-performance fees is 53% to 75%, raising questions if current fee structures effectively incentivize performance.
Source: Financial Analysts Journal
Author: Wayne Lim
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4403337434