Due to the active management of Private Equity, the product costs can be higher than for traditional funds and ETFs. Typical for the asset class is a cost structure consisting of ongoing charges per year and performance-based compensation in the event of a positive fund performance.
The management fee of the BlackRock Private Equity Fund is 1.95 % p.a. Other ongoing costs of the fund, e.g. for the annual financial statements, legal and tax advice, amount to an additional 0.35 % p.a. If the fund exceeds its minimum return of 5 % p.a., the fund management also receives a performance-related share of 12.5 % on the profits.
The performance-related profit share is determined on a fund level and not for individual deals (deal-by-deal). This can enable that the interests of the fund management and the investors are better aligned.
A simple example: A fund contains two companies of the same size, each of which generates a return of +10 % and -10 % respectively during the performance period. On a fund level there is no performance fee applicable, as the positive and negative returns of these two deals cancel each other out. In contrast, a fund applying the deal-by-deal method would incur a performance fee on the deal with a return of +10 %. Investors would be disadvantaged, as the fund manager receives a performance fee even though the overall fund has not achieved a positive return.