Direct placement means the client’s capital goes to the fund manager (the general partner or the fund’s adviser) without a third-party access platform in the middle. There are two common forms: a traditional limited-partnership commitment to a private equity or venture capital fund, and a direct subscription into a registered vehicle’s no-load institutional or advisory share class (for example, a BDC or interval fund bought at NAV through your custodian). In both, Layer 3 is minimal or zero — that is the entire economic point of going direct.
Direct model A — the private LP commitment (PE / VC)
Here the classic shorthand is “2 and 20”: a management fee of roughly 2% of committed capital during the investment period, and carried interest of 20% of profits above a hurdle. But treat the shorthand as a starting point, not an answer. Public benchmarking is clear that the real terms vary and the real cost is higher than the headline.
- Management fee. Cambridge Associates’ benchmarking of hundreds of funds (2018–2022 vintages) found management fees ranging from 1.0% to 2.5% of committed capital during the investment period, with 2% still predominant for buyout and growth. Emerging and venture managers (sub-$500M funds) commonly charge 2.25–2.5%.
- Carried interest. 20% is standard; top-tier funds sometimes command 25–30%. Buyout and growth funds typically apply an ~8% preferred return (hurdle) with a GP catch-up; early-stage VC funds often omit the hurdle entirely.
- Fund expenses (Layer 2). Organizational, legal, audit, and administration costs are charged to the fund on top of the management fee — they are not inside the 2%.
- The honest all-in. Independent modeling puts total fee drag for a fund returning ~2x gross over ten years at roughly 4–6 percentage points of IRR — the true distance between gross performance and what the client keeps.
Direct model B — the no-load registered share class
When a registered fund (a BDC, interval fund, or tender-offer fund) offers an institutional or advisory class — typically labeled Class I — a fee-based advisor can often subscribe at NAV with no upfront placement fee and no ongoing shareholder-servicing fee. The client still bears Layers 1, 2, and 4, but Layer 3 collapses to essentially zero. Section 5 details these classes; the key point here is that the same fund can be a direct or an intermediated purchase depending only on which share class you use.
Here is what “direct” looks like as a running cost stack. Each colored block is one cost added on top of the last; the number on the block is that cost, and the figure at the end of the bar is the all-in annual total. Both bars are drawn to the same 0–3.0% scale, so their lengths are directly comparable, and both carry a zero distribution layer — that is the whole point of going direct.