The Definitive Guide to Operations and Reporting Costs for Private Market Investors

Alternative investments – encompassing private equity, venture capital, real estate, private credit, hedge funds, infrastructure, and direct private deals – have grown rapidly and now form a significant portion of portfolios. By year-end 2022, alternatives accounted for 21% of global asset management AUM (~$20 trillion). Industry forecasts expect this share (and its revenue contribution) to continue rising, with alternatives projected to generate 55% of global asset management revenues by 2027. Alongside this growth, investors in the US and Europe have grappled with the high administrative, operational, and analytical costs of managing these assets. Unlike public markets, private investments entail burdensome processes – manual data entry, document retrieval, capital call management, bespoke accounting, illiquid valuation analysis, and complex reporting – that drive up costs. Below, we break down the cost components of managing alternative investments over the past 5 years (2019–2024), segmented by region (United States vs. Europe) and by investor category.

We will examine each major investor group – institutional investors, family offices, high-net-worth individuals, endowments, and RIAs/wealth managers – highlighting their cost structures for alternative asset administration. Key cost components (both direct fees paid to external managers and internal operational costs), differences between the US and Europe, and trends such as technological automation and outsourcing vs. in-house management. Our findings are drawn from credible industry reports, surveys, and studies, with sources cited.

1. Institutional Investors (Pensions and Insurance Funds)

Scope: This category includes large institutional asset owners such as public and corporate pension funds, sovereign wealth funds, and insurance company investment portfolios. These institutions have been steadily increasing allocations to private markets for diversification and yield. With larger scale and fiduciary oversight, they focus on managing costs both internally and via negotiated external manager fees.

United States

Cost Structure: U.S. pension funds and insurers incur substantial costs when investing in alternative assets, primarily due to high external fund management fees and performance fees, plus the internal resources needed to oversee these investments. Academic benchmarking shows that traditional asset classes carry far lower expense ratios than alternatives. For example, managing a public fixed-income portfolio costs on average ~21 basis points (0.21% of assets), and public equities ~34 basis points for U.S. pensions. By contrast, private equity is dramatically more expensive – U.S. pension studies find total costs around 270–280 bps (≈2.7–2.8%) per year for private equity fund investments, once management fees and performance fees (“carry”) are included. Hedge fund allocations similarly carry high fees (e.g. ~2% management plus 20% performance); one study noted the majority of cost for pensions’ hedge fund and PE investments comes from performance fees. These fee levels dwarf those of traditional assets, directly eating into net returns – for instance, one analysis noted a 1% increase in annual costs can reduce a pension beneficiary’s end benefit by ~27% over a career.

Beyond fees paid to external managers, institutions face operational overhead costs to administer alternative portfolios. Activities like processing capital calls and distribution notices, tracking fund financials, valuing illiquid holdings, and consolidating reports require specialized staff or systems. Large U.S. pensions have responded in two ways: (a) building in-house investment teams to handle alternatives (the “Canadian model”) and reduce reliance on expensive external funds, and (b) negotiating fees or using co-investments to cut costs. In-house management shifts costs from external fees to internal expenses (salaries, technology, etc.), but can save money at scale. For example, some of the largest North American funds directly execute infrastructure or real estate deals – incurring internal costs (e.g. deal teams, due diligence expenses) that are a fraction of the 2%-and-20% typical in private funds. However, mid-sized and smaller U.S. institutions typically lack the scale for full internalization and remain heavily reliant on external managers and fund-of-funds, paying the associated fees.

Trends (2019–2024): There has been growing pressure for cost transparency and efficiency in this period. U.S. regulators and stakeholders have pushed for clearer disclosure of all-in fees for private investments. Many institutional investors have also reconsidered their cost-benefit tradeoff in alternatives: while private markets have outperformed in recent years (helping e.g. university endowments and pension funds buffer public market downturns), the operational complexity and cost are non-trivial. This has spurred adoption of outsourced solutions for operations. For instance, institutions increasingly hire third-party fund administrators and custodians to aggregate data from private funds, handle document management, KYC/AML compliance, and performance reporting. By addressing such back-office challenges (e.g. automating investor onboarding and capital call processing), service providers can reduce internal workloads and potentially “reduce costs and improve the investor experience for key lifecycle events like capital calls and distributions”.

Another trend is selective outsourcing of investment management via OCIOs (Outsourced Chief Investment Officer firms). In the U.S., many endowments and smaller pensions have contracted OCIO providers to manage their alternative allocations, effectively pooling resources to achieve scale and expertise. However, surveys in late 2023–24 showed that appetite for further outsourcing among U.S. asset owners had plateaued (most who wanted to outsource have already done so). Thus, large U.S. institutions continue to run substantial in-house operations, while smaller ones outsource for efficiency.

Operational Pain Points: U.S. institutional investors cite data management as a major pain point. Each private fund or direct deal produces hundreds of unstandardized documents – capital account statements, quarterly reports, K-1 tax forms, notices, etc. – often arriving irregularly via email. Back-office teams historically spent countless hours on manual data entry and reconciliation: ingesting PDFs, re-keying values into spreadsheets, and checking for missing data. This manual workload is not only costly but error-prone. As one technology provider noted, processing thousands of documents by hand each month is “time-consuming and costly” and leads to frequent errors. The past five years have seen a push to alleviate this through automation. Tools employing OCR (optical character recognition), natural language processing, and machine learning can now extract key data from fund documents automatically. Adopters of such tech have reported dramatic efficiency gains – for example, one U.S. allocator was able to cut operational costs by up to 95% by eliminating time-intensive manual data processes. While 100% automation is unrealistic, even partial automation shortens reporting cycles and reduces the need for large ops teams. In summary, U.S. institutions in 2019–2024 faced high direct costs (fees) and high internal costs (staff and systems), but responded with a mix of fee-conscious investment strategies, selective outsourcing, and tech-driven process improvements.

Europe

Cost Structure: European institutional investors share many of the same challenges, though there are a few distinctions. European pension funds historically had lower allocations to alternatives on average than U.S. peers, but this gap has been closing as low interest rates pushed them toward private markets. Like the U.S., when European pensions and insurers invest in private equity or hedge funds, they incur high costs. A comprehensive study of European pension funds found private equity to be the most expensive asset class, with average costs around 2.7% of assets annually – essentially the same magnitude seen in North America. Hedge fund allocations are similarly costly (often 2%+ total cost). One noted difference is that European funds often utilize fund-of-funds or external managers for alternatives, especially smaller pension plans and insurance companies that lack in-house teams. This extra layer (e.g. a fund-of-funds fee on top of underlying fund fees) can make the effective cost even higher. Studies have found that economies of scale are critical: larger European funds achieve somewhat lower cost ratios, whereas small funds pay markedly more (costs have an inverse relationship with size). This has led to consortium investing and outsourcing in Europe – small institutions pooling into collective investment vehicles or hiring external mandates – despite the double-cost, because they cannot support internal operations alone.

Regulatory Factors: European regulations impose additional operational costs on alternative investing. For example, the AIFMD (Alternative Investment Fund Managers Directive) requires rigorous fund reporting, risk controls, and the appointment of independent depositaries for private funds – all of which add compliance costs for EU-domiciled funds. Insurance firms under Solvency II face high capital charges for certain alternative investments, which indirectly increases the “cost” (in capital terms) of holding them. Thus, European investors sometimes favor lower-cost structures (e.g. infrastructure debt over equity, or investing via managed accounts) to mitigate both regulatory and fee burdens.

Outsourcing vs. In-House: In the last five years, Europe has seen a notable shift toward outsourcing operational functions for alternatives. European custodians and fund administrators (e.g. Northern Trust, BNP Paribas Securities Services, IQ-EQ, etc.) have rolled out services for institutional limited partners – handling tasks like data aggregation, reconciliation, and performance analytics for alternative portfolios. Many European pensions now subscribe to such services rather than building extensive internal systems from scratch. That said, some large European institutions (e.g. major Dutch, Nordic, or UK pension funds) have emulated the Canadian model by bringing investment management in-house. For instance, Dutch pension funds have famously low cost ratios by managing a significant portion of assets internally and leveraging scale. Even so, the Dutch central bank found that certain asset classes (private equity, real estate) remain less scalable – costs don’t drop as quickly with size – so large funds still paid considerable performance fees in those categories. In sum, European institutional cost structures vary widely by size: big players have built internal capabilities to cut external fees, whereas mid-small investors rely on external managers and are exploring outsourcing for operations.

Operational Pain Points: European investors echo the data and reporting challenges seen in the U.S. A European industry report noted “sourcing and accessing consistent, reliable data in a timely fashion” as a top concern for alternative asset managers and allocators. Fragmented data across various GPs (often delivered in different languages or accounting standards in Europe) complicates consolidation. Manual data processes remain prevalent in Europe too, contributing to errors and delays. However, awareness of tech solutions is growing. Over 2019–2024, more European firms have invested in portfolio management systems and data automation to handle alternatives. Additionally, language and cross-border regulatory requirements (e.g. translating reports, meeting each country’s compliance rules) are unique overhead considerations for Europe. These factors make specialist outsourcing firms attractive – as they can provide multilingual support and ensure regulatory filings (EMIR, MiFID reporting for hedge funds, etc.) are handled properly.

One pain point somewhat unique to Europe is the heterogeneity of the investor landscape. For example, many continental European pension plans are smaller and traditionally bond-heavy; when such a plan makes a first foray into alternatives, it often must outsource expertise (hiring consultants or fund-of-funds) because it lacks internal experience. This learning curve cost has been a barrier, but it’s gradually being overcome through knowledge transfer and collaboration (industry associations in Europe have published cost benchmarking guides to help smaller funds understand typical fees and avoid overpaying). Overall, European institutions in the past five years have been catching up to the U.S. in alternative allocations, and consequently now face similar cost management challenges – with a strong emphasis on transparency, regulatory compliance costs, and finding the right balance between internal and external resources.

2. Family Offices

Scope: Family offices (FOs) manage the wealth of ultra-high-net-worth families, either as single-family offices (SFOs) serving one lineage or multi-family offices (MFOs) serving a few. They often invest heavily in alternatives – private equity, hedge funds, real estate, direct company stakes, and other illiquid opportunities – to grow and preserve multi-generational wealth. Family offices perform not only investment management but also a range of administrative and concierge functions (estate planning, tax, governance, etc.), all of which contribute to their cost base. Here we focus on the investment management-related costs for alternatives.

United States

Cost Structure: U.S. family offices are known to have substantial operating budgets, especially those managing billionaire-level wealth. A recent survey by J.P. Morgan Private Bank of 190 family offices globally (with an average of ~$865 million in assets each) found that respondents spend about $3.2 million annually on running the family office on average. This includes all services, not just investing, but alternatives are a large driver of costs. In fact, larger U.S. family offices (those with $1 billion+ in AUM) spend much more – averaging about $6.1 million per year in operating costs – according to the same 2024 Global Family Office report. Measured relative to assets, a North America study found family office costs around 1.2%–1.5% of AUM. Specifically, North American FOs in 2022 spent 142 basis points of AUM on total costs (up from 121 bps in 2021), of which roughly half (72 bps) were internal operating costs and half (70 bps) were external investment management fees and custodian fees. This means for a $1 billion U.S. family office, internal expenses might be ~$7.2 million and external fees another ~$7 million in a year. Globally, family office costs were even slightly higher at ~153 bps of AUM in 2022 on average, indicating that smaller or non-U.S. offices have higher cost ratios.

Breakdown of Costs: The internal operating costs for a family office can be segmented into key components. For North American family offices (2022 averages), the cost breakdown was as follows:

Table: Average operating cost breakdown for North American family offices (circa 2022), not including external fund manager fees. Source: Campden Wealth/RBC survey.

In addition to these internal costs, U.S. family offices pay external fees whenever they allocate to third-party funds or managers. Those can include private fund management fees (commonly ~2% per year) and performance fees (typically 20% of profits) – which are often negotiated for large tickets but still significant. Family offices also incur professional fees for specialized services like legal due diligence on direct deals, external tax advisors, or consultants for manager selection.

Operational Challenges: Family offices, especially SFOs, often run lean teams and thus struggle with the heavy operational workload from alternative assets. Many U.S. family offices dramatically increased their allocations to alts in recent years (one study found 44% of the average family office portfolio is now in alternatives). This has turned what used to be a niche part of reporting into a central focus. A key pain point is data aggregation: Unlike public stocks that feed automatically from custodians, alternative investment data is largely unstructured. Family offices report that “most [alternative] data is stored in various spreadsheets and file formats” and requires manual data entry into reporting systems, which “creates errors, is time-consuming and costly to maintain”. For example, each private fund sends quarterly financials and capital account statements that staff must manually extract and input into the family’s portfolio software. If a family office invests in dozens of funds and directs, this means hundreds of documents to process quarterly. Manual processes not only consume staff hours but also delay reporting – making it hard to provide up-to-date consolidated reports to the family.

Another challenge is talent management. The highly personalized nature of family offices means they compete with larger firms to hire and retain qualified accountants, analysts, and investment managers. J.P. Morgan’s family office advisory head noted that managing costs while “recruiting and retaining top talent” is a primary focus for family offices, and these two goals can conflict when skilled staff demand high compensation. Rising salary pressures in finance (and competition from Wall Street firms) have driven up the HR cost component for U.S. family offices over 2019–2024.

Technology and Automation: To alleviate manual workloads, U.S. family offices have shown growing interest in investment technology. According to survey data, about 46% of North American family offices upgraded their IT infrastructure in the past couple of years. Specialized software (for partnership accounting, document management, etc.) and new fintech solutions are being adopted. Such tools “digest, validate and extract unstructured data”, freeing staff from low-value data entry tasks. Family offices that implemented these technologies have reported significant efficiency gains. Moreover, technology aids in analytics: family offices want to apply similar rigor to alternative assets as they do to public investments, e.g. calculating look-through exposures, cash flow projections for capital calls, and risk scenarios. Modern portfolio management systems now offer modules to model private investment cash flows and performance, which is becoming essential given the large allocation to alts.

Outsourcing Trends: U.S. family offices historically prefer tight control and privacy, doing many functions in-house. However, the surge in cost and complexity has led even some single-family offices to outsource select activities. Administrative outsourcing is common – e.g. hiring an external fund administrator or accounting firm to maintain books for partnership vehicles, or using custodial bank “alt data” services to reconcile statements. Strategic outsourcing of investments is also on the rise: some family offices use external CIO services or invest through fund platforms to gain scale. According to the Global Family Office Report, the high costs (averaging $6.1M for large offices) have made “management and strategic outsourcing a priority” for many families. For example, instead of directly investing in 20 different private equity funds (and handling all the paperwork), a family office might allocate to a fund-of-funds or feeder fund platform that consolidates those investments – effectively paying a single fee for someone else to handle the admin. While this adds a layer of cost, it can be efficient for smaller teams. Notably, family offices also collaborate with each other more now (club deals, co-investments) to spread diligence costs and access deals without paying fund fees.

Direct Investment Considerations: Many U.S. family offices engage in direct deals (e.g. taking equity stakes in operating businesses or real estate properties themselves). While this avoids external fund fees, it introduces high internal costs and time commitments. One experienced U.S. family office executive commented that direct private equity deals “require more time” and thus the family expects a premium of ~500 bps (5% extra return) above fund investing to justify doing it in-house. Direct investing means the family office must perform functions akin to a private equity firm – sourcing deals, conducting due diligence, managing the investment, potentially sitting on boards – which can necessitate hiring domain experts and legal teams. Over 2019–2024, many larger family offices did build out direct investment teams (especially to pursue venture deals and real estate projects), thereby increasing their operating budgets but also potentially saving on fund fees in the long run. The cost trade-off is nuanced and depends on the family’s scale and capabilities.

In summary, U.S. family offices have seen their alternative investment management costs climb in recent years, driven by bigger allocations and talent expenses. They are responding by adopting new technologies to automate manual work and selectively outsourcing or co-investing to achieve scale. The result is a hybrid model: keep core strategic functions in-house, but leverage external support for labor-intensive processes (data handling, fund admin, specialized due diligence) to rein in costs.

Europe

Cost Structure: European family offices, particularly in wealth centers like Switzerland, London, and Luxembourg, face similar cost dynamics with some regional flavor. Many European family offices are a bit smaller on average than their American counterparts (outside of a few large SFOs). Consequently, their **absolute operating costs tend to be lower in dollar terms but often higher as a percentage of assets due to less scale. For instance, global surveys (including Europe) put average family office costs at ~1.5% of AUM, slightly above the North American average (~1.4%). The cost components are analogous – investment management, administration, etc. – though the mix can differ. European family offices often have fewer in-house investment professionals; they lean more on external private banks, advisors, and funds for sourcing investments, which shifts some costs into “external” fee category. For example, a Swiss family might use a private bank’s alternative investment platform (paying the bank fees) instead of hiring a full internal investment team – trading off higher direct fees for a leaner staff.

Operational Challenges: European FOs suffer the same data and reporting headaches from alternatives. In some cases, the challenge is exacerbated by multi-jurisdictional complexity: a European FO may have to consolidate investments held through various offshore structures or across Europe/US, dealing with multiple currencies and accounting standards. Consolidated reporting is thus a pain point. As in the US, manual processes are common. One Europe-based family office technology firm notes that FOs struggle to produce the level of detailed reports on private assets that wealthy families now expect – beneficiaries want the same granularity for hedge funds and PE as for stocks, which pushes offices to gather and input a lot of data they never had to before.

Technology Adoption: European family offices have historically under-invested in technology (with some surveys showing only ~1% of their budget goes to IT systems). However, there is a growing realization that automation is essential to control costs. Over 2019–2024, European FOs started catching up by implementing portfolio management software tailored to private assets. Firms in London and Geneva, for example, have begun using fintech solutions that parse unstructured documents (similar to those used in the U.S.). This is gradually improving efficiency. Still, many smaller FOs in Europe remain low-tech, relying on Excel and thus spending significant staff time on bookkeeping and performance tracking for alternatives.

Outsourcing Trends: Culturally, European family offices may be slightly more open to outsourcing certain functions than U.S. ones, given the tradition of using private banks and external managers. It’s common for a European FO to outsource fund administration, custody, or consolidated reporting to a trusted private bank or fiduciary services firm. In the past five years, the multi-family office (MFO) model has also expanded in Europe – essentially outsourcing the entire investment office to a professional firm that serves multiple families. By pooling families, an MFO achieves better scale economies: the MFO can hire top investment talent and build robust infrastructure, funded by charging each family a fee. This fee might be, say, 50–100 bps of assets – which for a single family would be high, but by sharing it across families it becomes viable. Thus, smaller European fortunes increasingly join MFOs or platforms to access alternatives without carrying the full internal cost structure.

At the same time, large European single-family offices (for billionaire families) behave much like U.S. ones – they’ll absorb multi-million-dollar budgets to keep control in-house. For example, some of the big London-based SFOs reportedly have 20–50 staff, similar to large U.S. counterparts, and budgets in the millions. Those offices also engage in direct deals and sometimes even create their own private equity firms or funds to manage family capital, incurring costs similar to an institutional investor.

Regulatory Considerations: Europe’s regulatory environment can indirectly raise family office costs too. If a family office manages money for multiple families and charges fees, it could be deemed an asset manager under EU regulations, requiring licensing. As a result, many European single-family offices ensure they only manage the founder’s family money to avoid regulation – but if they do act like a fund (say co-invest with others), they might need AIFMD compliance, audits, etc. Some family offices therefore prefer to invest as clients in established funds or via bank platforms to avoid the operational burden of being the “manager”. This can be seen as a form of outsourcing risk and compliance: let the fund deal with regulatory costs while the family office pays the fee.

Cost Management: Despite regional differences, European family offices echo the same priority heard globally: cost control. A recent study found that families are keeping a close eye on expenses and considering outsourcing where it makes sense. European FOs are also paying attention to cybersecurity and risk management (part of operational cost) after some high-profile cyber incidents – this has led to increased spending on IT security and insurance, adding to overhead.

In summary, European family offices in 2019–2024 are balancing the allure of alternatives (for higher returns) with the reality of high management costs. They are gradually investing in tech and outsourcing partnerships to mitigate administrative loads, while still ensuring privacy and control. The cost structures remain heavy: even in Europe, a well-resourced family office can easily spend 7 to 8 figures (USD) annually when fully accounting for staff, systems, and external fees, in order to manage a complex alternative-rich portfolio.

3. High-Net-Worth Individuals (HNWIs)

Scope: This category refers to individual investors who are wealthy (but not necessarily with their own family office). It includes clients of private banks, individual partners in deals, and generally those investing personal capital into alternatives. Their investment sizes are smaller than large institutions or family offices, which creates unique cost considerations – they often access alternatives via intermediaries and products that come with layered fees.

United States

For HNW individuals in the U.S., managing alternative investments is usually done through wealth management firms, private banking divisions, or specialized feeder funds rather than a dedicated personal staff. A single affluent investor rarely has the volume to warrant bespoke operations; instead, they rely on platforms and advisors. This means HNWIs often pay high indirect costs for alternatives, even if they don’t see an itemized “operations” bill. Key cost components include:

• Fund Fees: When an HNW client invests in a private equity or hedge fund, they pay the standard management fees (1–2% annually) and performance fees (~20% of profits) to the fund manager. Unlike large institutions, HNWIs have little negotiating power to get fee breaks. If anything, they may pay more: many marquee private funds have high minimums ($5–10 million). To invest smaller tickets, HNWIs use feeder vehicles (e.g. an iCapital or CAIS feeder fund that aggregates many investors). These feeders charge additional fees on top of the underlying fund – often an extra ~0.5%–1% annual admin fee or a one-time load. Thus, a HNWI might end up paying, say, 2% + 20% to the underlying fund, plus 1% feeder fee, and possibly plus their advisor’s AUM fee if in a managed account. The all-in costs can be quite large relative to public investment costs.

• Advisory and Custody Fees: Wealth managers (RIAs or brokerages) typically charge HNW clients an advisory fee (~1% of assets annually) which covers portfolio management and financial advice. However, alternative assets sometimes incur extra custody or administration fees in these arrangements. For example, holding a private investment in an IRA or brokerage account may have an annual custody charge (some custodians charge a few hundred dollars per alternative asset, or a basis-point fee). If the advisor uses an alternative investment platform, that platform’s costs might be passed along. In short, HNW individuals often pay layers of fees to various service providers in order to participate in private deals.

• Internal Time and Resources: Although HNWs don’t maintain an “operations department,” those who invest actively in alternatives often incur other indirect costs. They may hire lawyers for due diligence on a private placement, accountants for handling K-1 tax forms from partnerships, or consultants for evaluating an investment. These professional fees add to the cost of managing alternatives for an individual. For instance, investing in a private real estate deal might require paying an attorney to review the subscription documents and an accountant to handle complex tax reporting, easily costing thousands of dollars — a burden not present when buying a stock or mutual fund.

Operational Challenges: For the individual investor, the complexity of alternatives can be daunting. Many independent accredited investors have avoided alternatives historically not due to lack of interest, but because of the operational and knowledge hurdles. A white paper on RIAs observed that “many advisors and their clients shy away from alternative investments because performance isn’t visible daily…and it feels like an opaque black box.” More pointedly, “many RIA advisors steer clear… not for investment reasons, but because they feel they cannot cover the costs associated with these illiquid investments and their operational nuances”. This statement applies to HNW individuals as well – without institutional infrastructure, the burden of paperwork (capital calls, audited financials, tax documents) falls on the investor and their small advisory team. For example, a private equity fund will issue unpredictable capital calls that an individual must fund on time (or face penalties). Keeping track of these and ensuring liquidity is an operational task that some find troublesome, especially if juggling multiple fund commitments.

Additionally, reporting is a challenge. An individual with a few alternative holdings may not have a consolidated performance report. They might only see each investment’s updates sporadically, making it hard to know their overall portfolio status. Advisors have had to step in, with some creating manual consolidated reports – again at a cost of time (or using software if available).

Solutions & Trends: The 2019–2024 period in the U.S. saw a proliferation of platforms aimed at HNW investors to streamline alternative access and management. Firms like iCapital, CAIS, and feeder funds offered “one-stop” solutions: the HNWI signs a single set of documents to join a feeder, the platform handles all downstream interactions with the fund (capital calls, distributions, K-1s), and the investor gets a simplified statement or online portal. These platforms effectively outsource the operational heavy lifting from the individual to the service provider. By “consolidating client assets into larger feeder funds”, the service providers achieve scale and often negotiate reduced fees from top-tier managers that an individual could never get on their own. They also provide tech portals for timely performance updates, addressing transparency issues.

From a cost perspective, while these platforms charge fees, they likely lower the total cost vs. a DIY approach for many HNWIs. The reason is that if an RIA or individual tried to “build the proper infrastructure” in-house – legal structuring of an LP, fund accounting, annual audits of each partner’s holdings – it would be prohibitively expensive and complex for a small scale. By “leveraging the operations personnel and buying power” of these providers, HNW investors can get access to alternatives “for much less cost than [they] could achieve on their own.”. In essence, the platforms spread the operational cost across hundreds of investors.

Another trend is the rise of registered feeder funds (interval funds, tender offer funds, non-traded REITs/BDCs) that package alternatives in a semi-retail format. These often come with high expense ratios (sometimes 2-4% annually), which is a cost to the investors, but they handle all admin internally. Such products grew in popularity in the U.S. during this period, indicating that some HNW investors are willing to pay a premium for convenience and access.

Outsourcing vs. Direct: Unlike larger investors, HNW individuals in the U.S. almost always outsource the management of alternatives, either to their financial advisor or a platform/fund vehicle. The concept of “in-house” management here usually just means the individual and their personal advisor doing due diligence and selecting funds, but the heavy ops are done by someone else. A rare HNW might personally hire a consultant or back-office specialist for a complex investment, but that’s uncommon. We can consider private angel investors or very active angel groups as an analog – they sometimes hire part-time analysts or accountants to help track their venture portfolios. This is the exception; the norm is to lean on the structures provided by the market.

In summary, for U.S. high-net-worth investors, the cost of participating in alternatives is largely embedded in the fees of the products and services they use. They face high expense ratios and administrative fees, which are justified as the price of admission to opportunities previously reserved for institutions. The last five years brought improvements in this space: better platforms, slightly more fee transparency, and more competition (which can drive feeder fees down modestly). Nonetheless, managing alternatives remains significantly more costly (and complex) for an individual investor than managing a traditional stock/bond portfolio, which is why many HNWIs allocate only a modest portion to alts unless they have exceptional conviction or access.

Europe

European high-net-worth individuals share similar experiences, though the landscape is shaped by the private banking tradition. In Europe, many HNWIs (especially the ultra-wealthy) bank with large institutions (UBS, Credit Suisse, Deutsche Bank, etc.) that provide integrated wealth management services including alternative investments. These private banks often serve as the gateway to private funds or deals, and they embed the costs within banking fees and product fees.

Cost Structure: A European HNWI typically pays their private bank an annual fee (or the bank earns commissions) for managing their portfolio. When alternatives are included, the bank might use in-house feeder funds or third-party funds-of-funds. Extra layers of fees are common. For example, a private bank might offer a “private equity opportunities fund” to clients, which itself charges perhaps ~1% management fee and 10% performance fee, on top of the underlying fund fees, effectively stacking costs. Wealth reports have noted that European investment funds (including those for retail/high-net-worth) historically had higher fee levels than U.S. counterparts, partly due to smaller fund sizes and the distribution model. This suggests HNWIs in Europe could be paying slightly more for alternative products than similar investors in the U.S., although this gap has been narrowing as global platforms (like iCapital) expand in Europe.

Accessibility and Scale: Europe has seen growth of platforms and feeder funds for independent advisors too, similar to the U.S. CAIS and iCapital, for instance, have extended their reach to European wealth managers in recent years. The effect is the same: pooling investors to meet minimums and outsourcing ops. For individual investors in Europe who are not ultra-rich, one barrier has been historically even higher minimums and less established secondary markets – meaning if they commit to a private fund, they are often locked in. This illiquidity is a cost (opportunity cost if they need liquidity). Some European countries also have tax complexity (for instance, certain private fund structures might be tax-inefficient for a local investor), which can add professional fees for structuring or tax advice as part of the cost of investing.

Trends: A notable trend in Europe is the push to “democratize” alternative investments for retail and affluent investors. Regulators and industry groups (like ALFI in Luxembourg) have been working on vehicles like ELTIFs (European Long-Term Investment Funds) – which are regulated funds that invest in private markets and can be sold to smaller investors under certain conditions. These vehicles still have high costs, but they package alternatives in a more accessible way. For the HNWI segment, this means more options are emerging beyond traditional private bank offerings. As competition increases, we might see pressure on fees – however, during 2019–2024, the immediate effect was an expansion of choices rather than a sharp drop in cost.

Operational Support: European HNWIs relying on private banks benefit from the bank handling much of the ops (for example, the bank’s back office will process capital calls, provide consolidated statements, etc.). They effectively outsource to the bank’s infrastructure, paying via the fees. Independent HNW investors (not using big banks) often work with local advisors or MFOs, which again is an outsourcing model. There’s not much of a concept of an individual doing all the admin themselves – except perhaps very sophisticated investors who are effectively running a family office but not calling it one.

Summary: The cost for European HNWIs to manage alternative investments is largely indirect and wrapped into service fees. They pay slightly different kinds of fees (sometimes front-load commissions or placement fees are more common in Europe, whereas U.S. might be more fee-based), but ultimately the challenge is the same: without pooling, they can’t access top-tier alternatives, and with pooling, they have to pay extra fees. The last five years have improved the infrastructure (with Europe developing its own frameworks like ELTIF and increasing platform availability), but the fundamental that alternatives require special handling and thus higher costs remains true.

4. Endowments and Foundations

Scope: This category focuses on non-profit institutional investors – e.g. university endowments, charitable foundations, and other perpetual funds – which have been pioneers in alternative investments. Large U.S. endowments famously allocate 50% or more to alternatives, and many European foundations have also increased private asset exposure. The cost of managing these pools is a critical concern, since every dollar spent on fees or operations is a dollar less for the institutional mission.

United States

Cost Structure: U.S. endowments (especially universities) typically report their investment expenses in two parts: external management fees paid to investment managers, and internal costs of the endowment office. Over 2019–2024, endowments’ costs have risen alongside their alt allocations. According to the 2022 NACUBO-TIAA study of endowments, institutions “reported that costs are rising”, driven partly by greater spending needs but also by investment expenses. The largest endowments ($1B+ in assets) usually have internal investment offices akin to small hedge funds – with a CIO, analysts, operations and risk staff. These offices are funded by charging the endowment a fee (often called an administrative fee or cost recovery charge). Median administrative fees charged to endowments are around 0.5%–1.0% of the endowment’s value, fairly consistent across size tiers. For example, a $1 billion university endowment might allocate about 0.5% (~50 bps) of its assets each year to run the investment office (salaries, overhead). Smaller endowments (e.g. $100M range) often charge closer to 1% to cover costs, and some very small ones even higher (because with little AUM, a minimal staffing cost is a larger percentage).

On top of internal costs, external management fees are substantial due to heavy use of alternatives. Endowments often invest with top-tier private equity, venture capital, and hedge funds. These funds generally command 1.5–2% management fees and 20% performance fees. In years of strong performance, performance fees can be enormous. Endowments report performance figures net of fees, but some disclose that they pay hundreds of millions in fees annually to private managers – for instance, a multi-billion dollar endowment can easily incur total fees equal to 2–3% of assets once alternative fees are accounted for (similar to the pension figures discussed earlier). A study by CEM Benchmarking a decade ago found large U.S. endowments had higher all-in costs (including performance fees) than most pension funds, due to their higher allocation to expensive asset classes.

Operational Considerations: The internal operations of an endowment fund resemble those of a sophisticated investment firm, but with a lean staff. They must handle capital calls, distributions, valuation of hard-to-price assets, compliance with donor restrictions, and extensive performance reporting to their boards. Many endowments also have to justify their costs publicly, as there is scrutiny from stakeholders (students, media) about whether high fees are worth it. This has led endowments to be leaders in negotiating fee terms. Over the last 5 years, some larger endowments pushed for lower management fees or better fee structures (e.g. lower base fee but a share of alpha) with alternative managers, leveraging their prestige and size.

In-house vs Outsourcing: A significant trend among U.S. endowments, especially mid-size ones, has been the Outsourced CIO (OCIO) model. Endowments under, say, $500 million often find that running a full in-house team with alternative expertise is too expensive or impractical. Instead, they hire an OCIO provider (like BlackRock, Cambridge Associates, etc.) to manage the portfolio. The OCIO will charge a fee (often ~0.5% of assets or a tiered fee) which the endowment treats as an external cost, and the endowment’s internal staff can be minimal (maybe a CFO and a liaison). This outsourcing can be cost-effective relative to trying to recruit a full team and get access to top funds. From 2019 to 2024, the OCIO industry saw strong growth – many more endowments and foundations opted to outsource investment management to deal with the complexity of alternatives. Surveys indicate a majority of small endowments either outsourced or were considering it, though larger ones continue to self-manage.

Those endowments that keep it in-house have had to invest in operations and technology. Similar to others, they’ve deployed tools for data management of alternatives. For instance, an endowment might use a platform to automatically collect and aggregate information from all the venture funds and hedge funds it’s in – something that historically junior analysts did by hand. They also frequently use consultants for operational due diligence (checking that fund managers have proper controls) which is an added cost but important for risk management.

Performance vs Cost Debate: It’s worth noting that U.S. endowments justify these high costs by the net returns. The largest endowments (Yale, Harvard, etc.) have in many periods outperformed simpler portfolios by enough of a margin that, even after fees, the universities come out ahead. For example, in FY2021 many big endowments had exceptional returns (over 30%), largely credited to alternative assets. However, in tougher years (like 2022 where many endowments had negative returns), the high fee drag became more apparent, sparking discussions if the “Yale Model” of heavy alternatives still works when costs are so high. This debate is ongoing, but from a cost perspective, endowments are continuing to pay for active alternative strategies, betting that the net outcome is positive.

Administrative Pain Points: Endowments must produce audited financial statements, and accounting for private investments is a challenge. Issues include valuation timing mismatches (private valuations come in with a lag), handling unfunded commitments (which need cash management), and tracking complex partnership terms. Many have invested in specialized accounting systems (e.g. Investran, eFront) to do partnership accounting – an upfront cost but one that became necessary as dozens or hundreds of partnerships are in the portfolio. Another pain point is document retrieval and archival: endowments receive a flood of documents from GPs and must maintain a secure archive (some use online portals or outsource to companies that provide LP document management solutions). Security and confidentiality are crucial, as these documents contain sensitive info.

Overall, U.S. endowments between 2019 and 2024 faced rising costs, increased operational complexity, but also improved tools and outsourcing options. The trend has been to either get big (invest in internal capabilities) or get help (outsource/partner). What’s clear is that managing a 50%+ alternatives portfolio for an endowment requires a significant budget – often on the order of 0.5–1% internally plus whatever is paid externally in fees, resulting in total costs that can approach 2% or more of AUM annually for a heavily alternative-focused endowment.

Europe

European endowments and foundations, while generally smaller than the U.S. giants, also increased alternative exposure and experienced parallel cost issues. Notably, Europe does not have as many massive university endowments (except perhaps Oxford, Cambridge colleges, etc.), but there are large charitable foundations and sovereign philanthropic funds.

Cost Structure: European foundations often have more conservative portfolios historically, but larger ones have embraced hedge funds, private equity, and real assets. Their cost structures, in turn, have begun to resemble those of endowments – paying alternative manager fees and needing internal or external management capabilities. A difference is many European foundations are managed by outsourced managers or within financial institutions (for example, a bank might manage a foundation’s assets under a mandate). In those cases, the foundation pays a fee to the manager (like an OCIO arrangement). This fee can be lower than what an endowment running lots of external funds would pay, but it depends. If the outsourced manager is essentially building a fund-of-funds for alternatives, then the foundation still pays underlying fund fees plus the manager’s fee.

Internal Resources: Only the very largest European endowments (perhaps a few academic or cultural institutions, or the big Nordic foundations) have in-house teams akin to U.S. endowments. Those that do will incur similar costs – salaries for investment professionals, risk and reporting systems, etc. They likely charge those costs to the fund annually, just as U.S. ones do. For example, a European foundation with €500 million might allocate, say, €2–3 million (0.4–0.6%) for internal and operational costs, and then also pay fund fees on top.

Trends: There has been a push in Europe towards more professional management of foundation assets, with many looking to the Yale model for inspiration but grappling with the cost. In countries like the UK, larger charitable trusts have banded together to get better fee deals or share knowledge on managing alts. Outsourcing is common – for instance, the Wellcome Trust (one of the UK’s largest endowments) manages internally but many mid-sized UK university endowments hire external multi-asset managers. In continental Europe, some foundations are required to keep costs low by charter, which can limit how much they invest in expensive alternatives.

Regulatory environment: European foundations aren’t under as much public scrutiny as U.S. universities are (there’s no EU-wide equivalent of the attention on Ivy League endowment fees), but they still must be transparent to regulators. Some countries mandate disclosure of management costs in annual reports. This transparency can actually deter smaller foundations from alternatives – seeing a high percentage spent on fees might be politically unacceptable for a charity. Hence, some avoid it or use lower-cost vehicles (like co-investments via development banks or social impact funds) that align with their mission but have subsidized fees.

Operational Considerations: For those that do invest, European endowments face the same operational tasks: performance tracking, cash flow management for commitments, and manager oversight. They too have been adopting improved systems or relying on custodians. A large European foundation, for example, might use its custodian bank’s alternative investment reporting service to get quarterly consolidated reports – something that wasn’t available easily a decade ago. This shows how service providers have stepped in as a cost for the foundation (custodial fees) but saving them from needing internal staff for it.

In summary, European endowments/foundations in recent years are cautiously increasing alternative investments and navigating the associated costs by outsourcing and careful cost management. While they may not spend as freely as U.S. endowments (due to smaller size and sometimes more frugal mandates), those that venture into alternatives accept that to do it properly means paying for expertise, whether in-house or via external fees.

5. RIAs and Wealth Management Firms

Scope: This category includes Registered Investment Advisors (RIAs), independent wealth managers, and private wealth management divisions who construct and manage portfolios (often including alternatives) for clients. These firms sit in between the end-investor (HNW individuals, family offices) and the alternative investments – they handle the operational burdens on behalf of clients. The cost considerations here pertain to how much it costs these firms to support alternative investments in their practice, and how that has changed in 2019–2024.

United States

Operational Burden on RIAs: For much of the past, smaller RIAs steered clear of private investments because of the operational complexity and cost. As one industry paper noted, from an ops perspective “investing in alternatives is obviously much different than buying an ETF… there are many moving parts to address”. These include setting up legal vehicles (LLCs or LPs) for clients, handling fund accounting and annual audits for each investor’s stake, and processing capital calls/distributions for private equity funds. For an RIA managing dozens of clients, trying to do this in-house would require significant staff and expertise (which is a high fixed cost). Many smaller advisory firms concluded they “cannot achieve the necessary scale to attract top-quality [alternative] managers at an affordable cost”, given the overhead.

However, client demand for alts has grown (surveys show over 80-90% of advisors now allocate to alternatives in some form). This forced RIAs to find solutions. Outsourcing and platform usage became the primary answer. Rather than each RIA building its own back-office for alternatives, many now use turnkey alternative investment platforms (e.g. iCapital Network, CAIS, Envestnet’s Alt platform). These platforms handle the operational pipeline – they pool RIA client money, take care of subscription docs, KYC, ongoing data gathering, etc., and provide the RIA with a single point of contact. The white paper by PFI Advisors remarks that all the highlighted solution providers “specialize in these nuances and can achieve scale to provide services for much less cost than RIAs could on their own,” leveraging their dedicated staff and tech. In practical terms, an RIA might pay a small platform fee or the platform is compensated by a slice of the fund fee, and in exchange the RIA avoids having to hire multiple operations and reporting personnel.

Internal Cost Components: For an RIA integrating alternatives, the costs include:

• Additional staff training and time – advisors and client service teams spend time on due diligence of alt managers, educating clients, and processing paperwork. This is time not spent on other tasks, which has an implicit cost. Many firms have had to hire or designate an “alternatives specialist” either in investments or ops.

• Systems – Traditional RIA portfolio systems (or custodians) did not readily support illiquid holdings. In recent years, RIAs often had to either invest in new software or use manual spreadsheets to track alternatives. Now, some custodians allow “alternative investment” entries and even provide valuation updates if linked to a platform, but this was a pain point. Integration of data (ensuring the alternatives show up correctly on client performance reports) has been a cost driver, sometimes requiring custom IT work or third-party software.

• Compliance – RIAs have to ensure they follow SEC custody rules when handling private assets. This might mean surprise audits or using a qualified custodian for private securities – which can incur fees. Also, if an RIA sets up a pooled vehicle for multiple clients to invest in a deal (forming a small LP), it takes on extra compliance burdens as an investment advisor to a fund, which could trigger higher compliance costs (e.g. needing audited financials for that LP, more legal work).

Trends: During 2019–2024, RIAs saw a significant improvement in operational support for alternatives. The ecosystem matured: major custodians like Schwab and Fidelity partnered with alt platforms to streamline fund subscriptions; forms became more electronic; and integrations were built so that an RIA’s reporting system could pull data from, say, iCapital automatically. These developments lowered the incremental cost of adding alternatives per client. What remains, though, is that alternatives often still have higher minimum fees or lower scale for RIAs. Some RIAs pass through platform fees to clients or charge additional fees for alternative investment management due to the extra work.

Economies of Scale: Larger wealth management firms (managing billions in client assets) have an advantage – they can either negotiate institutional access to funds directly or even launch their own feeder funds. Some large RIAs have created in-house feeder funds or co-investment vehicles (essentially acting like mini fund managers) to aggregate client money into deals. While this entails upfront cost (legal setup, admin), it can be spread over many clients and potentially even become a profit center if they charge a modest fee. Smaller RIAs cannot afford that, so they rely on third-party products.

Outsourcing vs In-house: Clearly, the industry has shifted strongly to outsourcing for alt investment support. An RIA’s role now is more about manager selection and client integration, while the heavy lifting of ops is outsourced. In 2020, for example, if an RIA wanted to allocate clients to a private credit fund, they likely went through a platform rather than manually doing 50 subscriptions. The result is an RIA can plug into alternatives with less incremental operational cost than before – making it feasible for even medium-sized firms to offer alts.

It’s worth noting that the cost savings is a major driver for this outsourcing. Deloitte’s surveys on wealth management outsourcing often cite cost efficiency as a key reason (over 70% of businesses historically cited cost savings as a primary driver for outsourcing in general). By 2024, while cost is still important, RIAs also value the time savings and risk reduction outsourcing brings (fewer errors, not missing a capital call, etc.).

Pain Points: Despite improvements, RIAs still report some pain points with alternatives:

• Non-uniform data – If an RIA uses multiple sources (say some funds direct, some via different platforms), consolidating that for client reporting can be challenging.

• Client understanding – This is more on the advisory side, but explaining the complex fee structures and capital call mechanics to clients is labor-intensive. Many RIAs create custom education materials, which is an overhead cost albeit not easily quantified.

• Liquidity management – Advisors must plan for when clients might need cash vs. when private fund locks expire. If not managed well, an advisor might have to arrange a secondary sale (often at a discount) for a client who needs out – that’s a scenario with financial cost and time cost.

Overall, U.S. RIAs in this period have dramatically expanded their alternative offerings, made possible by outsourcing partnerships that keep operational costs manageable. The cost of integrating one alternative investment for a client has fallen due to these efficiencies, though it remains higher than adding a mutual fund. Many RIAs absorb some of this cost as part of servicing clients, while others explicitly charge or only introduce alternatives to larger clients where it’s worth the cost.

Europe

In Europe, the independent wealth advisory sector is smaller (a lot of wealth is managed by banks), but it’s growing. European independent wealth managers face similar issues when dealing with alternatives, and they too have benefited from emerging platforms and outsourcing.

Operational Challenges: A European advisor or small private bank looking to add alternatives faces multi-country complexities (like dealing with funds in various jurisdictions, each with different subscription requirements). Platforms like Moonfare (a European alternative investment platform) have arisen to cater to European advisors and HNWIs, akin to iCapital in the U.S. These platforms handle multi-lingual documents, local tax considerations, and EU-specific regulations, which is a big help. Without them, a local advisor in, say, Germany would have a hard time getting clients into a Delaware limited partnership fund due to both language and process barriers.

Cost Considerations: European wealth managers historically earned a lot from distributing in-house products; with alternatives, many didn’t venture because they couldn’t support it operationally. Now with third-party support, they can, but it often involves sharing revenue or paying fees to those platforms. The cost model might differ: sometimes the fund provider pays a retrocession to the distributor (though regulatory trends like MiFID II have cracked down on hidden commissions). Increasingly, European advisors operate on fee-only terms, so if they bring an alt to a client, they might charge an extra consulting fee or rely on the platform’s fees.

Outsourcing vs In-house: Similar to U.S., European advisors outsource heavily. They are even more likely to lean on private banks or external managers. In some cases, an independent advisor might just recommend the client invest in a private product offered by the client’s private bank, letting the bank do the work, while the independent advisor oversees holistically. In that sense, the independent advisor outsources the actual investment ops to another institution and just coordinates.

Trends: Europe is a bit behind the U.S. in adoption, but the trajectory is the same: more integration of alts into portfolios, and thus more need for operational solutions. The Luxembourg fund ecosystem has created many feeder funds aimed at EU investors, which advisors can use. There is also a trend of digital platforms (e.g. tokenization of private assets) in Europe that promise easier access and potentially lower costs in the future, though 2019–2024 was early for these new and untested innovations.

In summary, European wealth managers who deal in alternatives are essentially following the path blazed in the U.S., using outsourcing and fintech to handle the complexities. The cost to them is primarily in the form of platform fees or slightly lower margins (since part of the fee goes to the alternative provider), but these are deemed worthwhile to satisfy client demand and remain competitive.

Conclusion and Key Takeaways

Over the last five years, the cost of managing alternative investments has been a significant consideration for all types of investors in both the United States and Europe. Alternatives bring clear benefits (diversification, potential higher returns), but they come with much higher operational and administrative costs compared to traditional assets.

Key cost components include:

• Direct fees paid to alternative asset managers (management fees, performance fees, fund admin fees), which for institutional and wealthy investors can total several percentage points of the asset value annually – far above the cost of traditional investments.

• Internal operational expenses: staffing (investment professionals, accountants, lawyers), technology systems, and processes needed to handle data entry, valuation, reporting and compliance for illiquid assets. For example, family offices often spend over 0.5% of assets on internal operations alone, and even large endowments spend ~0.5–1% on internal investment office costs.

• Opportunity costs and inefficiencies from manual workflows. When teams rely on spreadsheets and manual document handling, the process is slow and error-prone, potentially leading to mistakes that have financial repercussions (like misreporting NAV or missing a capital call and incurring a penalty).

Regional differences between the US and Europe are relatively minor in the face of these challenges – both regions see the same pattern of high alternative costs. The differences lie in scale and structure (e.g. U.S. has more very large institutions and family offices with in-house teams, Europe relies a bit more on private banks and outsourcing). But ultimately, a common theme is the importance of scale: larger investors can spread costs and negotiate fees better, whereas smaller ones feel the cost pinch more acutely.

Trends (2019–2024) demonstrate a clear industry response to these cost pressures:

• Increased Outsourcing: Across all categories, there is movement to outsource non-core activities. Institutional investors outsource trading and middle-office tasks or even entire OCIO mandates; family offices outsource fund admin and certain specialized functions; RIAs outsource almost everything operational about alts. The goal is to achieve efficiency through scale – letting specialized providers handle the heavy lifting at a lower unit cost.

• Technology and Automation: There has been significant investment in tech solutions to reduce manual labor. Smart data extraction tools, centralized data platforms (for LPs to get all fund info in one place), and advanced analytics are being adopted. These reduce error rates and labor hours – e.g. automating document processing that was once a full-time job for a team can free up 80% of those costs. While upfront tech investments can be high, the ROI in operations can be substantial over time.

• Cost Transparency and Management: Investors are far more cognizant of their total cost of ownership for alternatives now. Industry bodies (like ILPA – Institutional Limited Partners Association) have pushed for standardized fee reporting from GPs, so LPs can actually quantify what they pay. With better data, investors have been renegotiating terms and shifting portfolios toward more cost-effective structures. Examples include co-investments (investing directly alongside a PE fund with no or low fees), secondary purchases of fund interests (to avoid paying full-term fees), or bringing certain strategies in-house (especially for those who can afford the fixed cost).

• Balancing In-House vs. External: We see a hybrid approach emerging. Core competencies (like critical investment decisions or confidential family matters) might stay in-house, whereas resource-intensive, lower value-add tasks are outsourced or automated. For instance, a pension fund’s investment team will make asset allocation calls (in-house) but might outsource the fund accounting and performance measurement to a service provider. A family office’s CIO will decide on which funds or deals to invest in (in-house), but the staff won’t manually enter each PDF statement – they’ll use a tech solution (outsourced/automated). This balance is improving cost-effectiveness.

Operational Pain Points continue to exist but are being addressed one by one. The unstructured data problem is gradually easing with technology. Document overload and communications with GPs have improved as many GPs now use investor portals and standardized reporting formats. Regulatory compliance remains a challenge (especially in Europe), but even there industry utilities are forming (for example, KYC utilities to avoid each investor doing repetitive KYC for each fund).

To sum up, managing alternative investments is inherently more costly and complex than traditional assets, a fact that has been evident in both the U.S. and Europe over the past five years. Institutional investors, family offices, HNWIs, endowments, and advisors have all felt the strain – from multi-million-dollar operating budgets in family offices to advisors hesitant to offer alts due to back-office burdens. The response has been a combination of spending more (to do it right) and spending smarter (to do it efficiently). Those who can afford it have ramped up their capabilities, and those who cannot have sought alliances and tools.

In a sense, the industry is at a point where alternatives are becoming mainstream, and with that comes a necessity to industrialize the operational side. The period 2019–2024 has seen big strides in that direction, but the process is ongoing. Investors in the next decade will likely demand even more transparency on costs and even greater efficiency. The ultimate goal shared by all is to minimize the “friction cost” of alternative investing so that the net returns – after all fees and admin – justify the illiquidity and complexity.

Given the trajectory so far, both the U.S. and Europe are innovating to achieve that, through collaboration, technology, and smarter allocation of resources. Managing alternative investments will probably never be as cheap as managing an index fund – but with the measures taken in recent years, the hope is that it will become significantly more manageable in cost and effort than it was in the past.

Sources:

• Campden Wealth & RBC, North America Family Office Report 2022 – cost benchmarks for family offices.

• J.P. Morgan Private Bank, Global Family Office Report 2024 – average family office costs and outsourcing trends.

• Canoe Intelligence – analysis of manual data entry costs for alternative investment documents (illustrating operational inefficiency and potential 80% cost savings via automation).

• Landytech, Top 5 Alternative Investment Reporting Challenges for Family Offices (2023) – discusses manual data processes in family offices being “time-consuming and costly” and need for tech solutions.

• PFI Advisors (COO Society) White Paper, Alternative Investment Solutions for RIAs (2020) – outlines why many RIAs avoid alts due to inability to cover operational costs, and how outsourcing to specialized platforms cuts costs.

• De Nederlandsche Bank (DNB) Working Paper No. 474, Scale economies in pension fund investments – provides empirical cost levels by asset class (e.g. ~21 bps for fixed income vs ~274 bps for private equity) and notes scale effects for large vs small funds.

• NEPC Endowment Report 2023 – commentary on rising endowment spending and need to manage costs.

• NACUBO-Commonfund Study of Endowments – data on administrative fee levels charged to endowments (median ~0.5–1.0% across sizes).

• BNY Mellon, Scaling for Growth: Alts Managers (2025) – highlights operational challenges like KYC/AML and the push to reduce these costs.