A major semiliquid private market fund fee item needs an overhaul. Acquired fund fee expenses, or AFFE, which are meant to capture the fees of a parent fund’s underlying funds, fall short of capturing semiliquid private market funds’ economic reality. Inconsistent disclosure practices and legal technicalities blur the picture for investors and make comparing underlying fees unduly difficult. Morningstar’s new Semiliquid Cost Estimates help investors make better fee comparisons, but acquired fund fees remain difficult, if not impossible, to normalize across funds.
What Are AFFE, and Why Do They Matter?
Acquired fund fees are the fees of a parent fund’s underlying fund holdings. In effect, the ratio represents the weighted average expense ratio of underlying fund holdings. The asset management industry often likes to downplay these costs as “indirect” to lessen their importance in investors’ eyes, but the bottom line is that acquired fund fees are real economic costs and should be disclosed as truthfully as possible.
For example, imagine you invest $1,000 in a fund of funds charging a 1% flat fee that has equal stakes in two funds: Fund A and Fund B, which charge respective flat fees of 3% and 2%. If each fund gains nothing in the next year, Fund A would collect $15 in fees from your investment and Fund B $10. Of course, the parent fund also would take its $10 cut from your outlay. All told, you would be charged $35, reducing your original $1,000 investment to $965—a 3.5% total economic cost. Yet, the fee impact might not be immediately obvious to an investor, who instead saw that the underlying funds’ net asset value decreased by 3% and 2%, respectively. Only the most attentive ones might realize it was the fees alone that caused those funds’ NAVs to decrease.
How Can 2 + 2 = 3?
The biggest issue with AFFE is that some underlying fund holdings can be excluded because of technical rather than economic reasons. The fee differences between Blackstone Private Multi-Asset Credit and Income BMACX and WVB Blackstone All Privates WVPAX epitomize the issue.
Blackstone Private Multi-Asset Credit and Income invests roughly 30% of its assets in Blackstone Private Credit’s (BCRED) I shares and roughly 25% in Blackstone Private Real Estate Credit and Income (BREC). Those funds had respective net expense ratios of 7.0% (including interest costs) and 5.7% as of their 2025 annual reports. Multiplying the expense ratios by their weightings in the parent fund gives you an expected AFFE of around 3.40%, reasonably close to the 3.12% Blackstone disclosed in its latest prospectus.
On the other hand, the acquired fund fee expenses for WVB Blackstone All Privates do not appear to capture the full picture. It is a fund of Blackstone funds launched in July 2026 and run by Wellington in conjunction with Vanguard and Blackstone, and it holds roughly 91% of its assets in four semiliquid strategies run by Blackstone. Yet, it reports AFFE of only 0.76%, or roughly 4 times lower than Blackstone Private Multi-Asset Credit and Income, despite significantly more exposure to underlying funds.
How can this be? The answer is legal technicalities. The two funds that Blackstone Private Multi-Asset Credit and Income owns are 1940 Act-registered funds, which means the underlying funds’ entire operating cost ratios (including debt and interest costs) get rolled into the parent fund’s AFFE.
Only one of WVB Blackstone All Privates’ four underlying funds, BCRED, is effectively included in the AFFE. It excludes Blackstone Real Estate Income Trust (BREIT) because it’s a REIT, which is exempt from AFFE because regulators consider REITs to be operating real estate companies, rather than simple pooled investment vehicles. On top of that, the fund accesses Blackstone’s private equity and infrastructure strategies via what are essentially feeder vehicles into a larger aggregator fund. These aggregator funds are where investor dollars ultimately end up, and it is at that level where the fees are collected. But for technical legal and accounting reasons, the parent funds do not have to include the aggregator funds’ fees in their AFFE.
For investors, though, the layers at which the fee is collected are irrelevant, as they are nonetheless being collected. Even granting the exclusion of BREIT from the calculation, the WVB fund’s true economic cost from the underlying funds is closer to 3%, as shown below.
Morningstar strips interest costs out of its adjusted expense ratio calculations because they can inflate a fund’s cost picture, provided the borrowed money can be deployed into assets earning a higher return than the cost of borrowing. Still, even the WVB fund’s acquired fund fee expenses that exclude interest costs but include incentive fees would be closer to twice the sticker price it quotes.
The simple question is: How can a fund that invests almost fully in underlying funds charging between 3.0% and 5.0%, excluding interest costs, have an expense ratio of its own between 1.4% and 2.3%? Something is obviously not being captured.
The fund does have a unique, investor-friendly fee feature, though. If the underlying Blackstone funds collect incentive fees in a period when the overall WVB fund loses money, Wellington will reimburse its share of those fees to the overall fund.
Capital Group and KKR’s Similar Problem
Capital Group KKR U.S. Equity+ USEPX highlights a related problem. Roughly a third of the fund, which launched in March 2026, is invested in the Class I shares of KKR Private Equity Conglomerate (K-PEC). While K-PEC functions similarly to pooled funds, it is registered as an operating company (similar to a REIT), allowing it to be exempt from AFFE reporting. To be considered an operating company rather than a fund, K-PEC has to effectively place at least 60% of its assets in businesses it controls (or controls alongside other KKR funds via joint ventures). Yet, private equity buyout drawdown funds work in largely the same manner, but because they typically operate under exemptions to the 1940 Act that allow private funds to pool money without registering as investment companies, they are still subject to AFFE reporting. Once again, legal technicalities create unnecessary delineations between economically similar entities.
Thus, Capital Group KKR U.S. Equity+ shows only 0.14% of AFFE, reflecting its co-investments in KKR-backed deals, but not K-PEC’s operating expense ratio. That fee, according to K-PEC’s 2025 annual report, was 3.19%, including incentive fees for the Class I shares in which the Capital Group fund has 32% of its assets. That should result in roughly 1.03% of additional AFFE, which would effectively double the expense ratio that it shows in its prospectus.
Investors Need To Know the True Cost
These examples are not outliers; they are just the easiest to highlight because the underlying fund fees are publicly disclosed. Roughly 80% of semiliquid funds in the private equity Morningstar Category include AFFE in their prospectus fee tables. In most cases, those AFFE numbers exclude incentive fees from underlying private fund holdings. Yet, those same incentive fees would not be excluded if the funds were publicly registered. There is room to improve AFFE reporting, particularly when it comes to how interest expense is treated, but the concept itself remains critical. Creating an even treatment among different investment vehicles will allow investors to make more informed decisions.
As Morningstar and many others have repeatedly shown, fees matter. High fees, no matter the layer at which they’re collected, coupled with high cash balances to manage investor liquidity, create a high hurdle for semiliquid offerings trying to beat cheap, public market options. It is the underlying assets that generate returns, and investors should know the fee burden of the underlying assets. Presenting as clear a picture as possible of AFFE helps clarify the true height of these funds’ cost hurdles. Right now, too many technicalities are muddying the picture.