Private markets in DC: Hidden charges, net outcomes and the need for better disclosure

Charges we can see

The case for private markets is about member outcomes: broader diversification, exposure to different sources of return, access to a potential illiquidity premium and, over time, the prospect of better returns.

But as soon as private markets enter the DC conversation, fees and charges follow. Some charges are visible and familiar. Annual Management Charges and Additional Fund Expenses give trustees and governance committees a clear line of sight over part of the total cost. These are the numbers that can be disclosed, benchmarked and challenged.

Charges we can only infer

By their nature, private asset fee arrangements are complicated as they often involve drawdowns, carry and performance fees. 

If a private equity manager owns and operates a business, some of the costs of managing or improving that asset may appear more explicitly in the investment structure, a key reason why private market funds appear much more expensive.

But to make it more complicated, different funds disclose some costs differently. Some costs may be deducted before the investment fund strikes its Gross Asset Value. In this instance the investor still bears the economic cost, but they may not see it as a separately itemised charge. That is the Truman Show problem. The reality is influencing the outcome, but Truman can’t see it. 

Funds not disclosing all fees on a like for like basis presents an obvious challenge in a market as fee sensitive as DC. Costs directly detract from returns and where disclosed fees are inconsistent this will introduce a distortion into an already complex decision-making process, ultimately leading to worse member outcomes.  

A useful comparison with passive investing

A defence for not disclosing certain charges lies in how similar charges are met in passive equity funds. When you invest in a passive equity fund, the costs of running the underlying listed companies do not appear as a fund charge to the investor. Executive pay, overheads, financing costs and operating expenses are reflected in company earnings and, ultimately, the share price. They are economically real but not disclosed as an investment charge.

So in one sense, not disclosing certain charges can make private market funds more comparable with listed market funds. 

Transparency still matters

But we are still left with the inconsistency across different private markets funds. If one fund discloses more of the costs explicitly, while another has more of them embedded below Gross Asset Value, the first may appear more expensive even if the true costs are broadly similar. 

Good member outcomes depend on trust and strong governance. Trustees need to understand what members are paying for, advisers need to compare managers fairly, and governance bodies need sufficient clarity to properly assess value for money. If transparency is weak across the market, meaningful challenge becomes much harder.

Full visibility supports trust and comparability. Inconsistent reporting can create unfair comparisons and may penalise managers who are simply being more open about costs.

The answer is better disclosure, not lesser ambition

The solution is not to retreat from private markets in DC. If these assets can improve member outcomes net of fees, they belong firmly in the conversation. The answer is industry alignment on how fees are described, classified and compared.

The Cost Transparency Initiative showed that the wider industry can come together to create a shared framework for understanding complex costs. Private markets in DC now need that same spirit: a practical consensus on what is shown at fund level, what sits within underlying assets, what is already reflected in valuations, and how “gross” and “net” performance should be interpreted.

That would help everyone. It would help providers explain products more clearly, trustees assess value more confidently and managers compete on substance rather than disclosure optics.  

Keep the member in focus

At heart, this is not really a debate about accounting lines. It is about making sure DC savers get the best possible outcome from their retirement savings. They do not benefit from fee opacity, but neither do they benefit from a system that steers DC arrangements away from potentially valuable long-term investments simply because disclosure is inconsistent or comparisons are crude.

The industry should be ambitious enough to do both: widen access to productive private market assets and build a clearer, more consistent language for explaining fees.

That’s the lesson from The Truman Show. When parts of reality are hidden, people make decisions without full understanding. Similarly to Truman, DC savers deserve better - not just access to good investments, but enough clarity to judge their value properly.