Fund fees versus direct ownership: the net-to-family maths

The fee saving from owning assets directly rather than through a fund is real but smaller than the headline "2 and 20" suggests. Fund fees have fallen and co-investment is often free of fees, while direct ownership carries staff and deal costs of its own. Bain's 2026 Global Private Equity Report cites Preqin data showing the average buyout fund management fee was 1.6% in 2025, about a fifth below the traditional 2%. Ropes & Gray's 2025 analysis found 49% of single-asset co-investments since 2022 carried neither fee nor carry. Against that, Morgan Stanley's 2025 compensation report put median total direct compensation for a family office CIO at $900,000. The net-to-family answer depends on the size of the direct book over which those costs are spread.

What funds charge

Headline terms have drifted down. Bain reports the 1.6% average management fee for buyout funds in 2025 and notes that more than half of limited partners believe they have more leverage with managers than a year earlier. Carried interest remains at or near 20% for most buyout funds, and Morgan Stanley's report describes 20% as "a traditional private equity level" when discussing family office carry pools. Fees are charged on committed capital during the investment period and usually on invested capital afterwards, so the effective drag on invested capital over a fund's life is higher than the headline rate in early years and lower later.

The fee is not the only cost of the fund route. Bain's 2026 outlook found distributions ran at 14% of net asset value in 2025, below 15% for the fourth year running, and average holding periods have reached around seven years. A family paying fees on capital that is not returned for seven years is paying more in total than the same rate over a five-year hold. The liquidity side of that problem is covered in the distributions drought.

What co-investment costs

Co-investment alongside a fund manager is the cheapest route into a private deal for most families. Ropes & Gray cites survey data showing over two-thirds of managers charge no management fee on co-investment, 42% charge no carry and a further 39% charge reduced carry. Where fees are charged, they typically fall between 0.75% and 1%, with carry at 7.5% to 15%. Bain's 2026 report found the median manager now offers 33 cents of co-investment per dollar of fee-bearing capital, which it says amounts to a 25% reduction in manager revenue. Some investors devote up to 30% of their private equity allocation to co-investment, according to Ropes & Gray, largely because of the saving.

Co-investment is not free of cost for the family. It needs people who can assess a deal in the manager's timetable, and Carta data from 2024 show that where a syndicate vehicle charges a fee, half fall between 1.4% and 2%.

What direct ownership costs

Direct ownership replaces the manager's fee with the family's own overhead. Morgan Stanley's 2025 report gives medians of $900,000 total direct compensation for a CIO, $242,000 for an associate and $125,000 for an analyst. A three-person team therefore costs roughly $1.3m a year before benefits, systems and advisers. Deal costs (legal, accounting and commercial diligence) are paid whether or not the deal closes. Campden Wealth's 2025 North America report found direct active holdings make up 17% of the average private markets portfolio and direct passive 16%, so for most offices the direct book is a minority of private markets and the team cost is spread over a modest base.

A worked example

The table below is illustrative and constructed by Family Office Primer. It assumes $10m invested in a deal that returns 2.0x gross over five years, with no leverage at the family level, no hurdle, no fee step-downs and identical gross performance across routes. Real outcomes differ on every one of those points, and gross returns are unlikely to be the same across routes because selection and concentration differ.

Carry in the fund row is calculated as 20% of profit after management fees. The two direct rows show the point that matters: with a $50m direct book the family's own overhead costs about as much as a discounted co-investment, and only at scale does direct ownership approach the economics of fee-free co-investment. The example excludes the value of control, which a direct owner has and a fund investor does not, and excludes the cost of a failed deal, which a direct owner bears alone.

What the surveys suggest families actually do

Citi's 2025 report found the average family office held 11% of assets in private equity funds and 9% in direct private equity, and Goldman Sachs' 2025 survey found offices rely primarily on managers for most alternatives other than real estate. The data are consistent with the maths. Funds buy diversification and access, co-investment reduces the fee bill, and direct ownership makes sense where the family has sector knowledge and enough scale to carry a team. Team costs are set out in building a direct investment team, and the terms of syndicated deals in club deals: how families syndicate.