The standard private equity fee load is two percent of committed capital every year plus twenty percent of the profits. Investors accepted that load for decades on the belief that it bought outperformance. The most cited academic work on the subject finds that it did not. Across the largest available datasets of buyout funds, the public market equivalent comes in at about 0.99 against the S&P 500, and the net internal rate of return lands near 10.8 percent, which is effectively what the public index delivered over the same period. Investors paid premium fees for index returns. For a capital allocator deciding where to put healthcare money in 2026, that single finding reorders the entire question, because it moves the conversation away from which manager is best and toward whether the fee structure itself is the thing quietly eating the return.

Why the Ophthalmology Investment Decision Starts With Fees

The research, drawn from the Burgiss dataset covering buyout vintages from 2000 through 2019, is uncomfortable precisely because the headline numbers private equity reports often look strong in isolation. A fund can show a respectable internal rate of return and still have delivered nothing the public market would not have delivered for free. The public market equivalent is the honest comparison, because it asks the only question that matters to the person writing the check. If an investor had put the same dollars into the public market on the same dates, with the same timing of contributions and distributions, would they have done better or worse? A public market equivalent of roughly 1.0 means the answer is neither. The illiquidity, the lockup, the lack of transparency, and the layered fees all bought a return that matched what a low-cost index fund produced.

The debate over these numbers usually comes down to which benchmark a fund chooses to measure itself against. Measured against the S&P 500, the outperformance disappears. Measured against weaker or more favorable indices, a small edge reappears, which is why benchmark selection has become its own quiet battleground in the industry. An ophthalmology investor who internalizes this stops asking which fund has the most polished pitch deck and starts asking a harder question about every layer of fees standing between the operating asset and the eventual return.

How Ophthalmology Rewards Direct Ownership Instead

The alternative to paying two and twenty for index returns is owning the operating business directly. An ophthalmology practice with a surgical facility generates real cash flow from a service that an aging population cannot postpone indefinitely. That cash flow is not a bet on multiple expansion or on a fund manager's timing. It is the recurring economics of a medically necessary procedure performed on a growing population. Owned directly and held permanently, that cash flow accrues to the owner rather than being skimmed at the management-fee layer every year and again at the carry layer on the way out.

The structural problem with the fund model is not the people who run the funds, many of whom are skilled operators. It is the arithmetic of a fee load applied to returns that turned out to match the public market. When the gross return and the public benchmark are close, the fees become the entire difference between a good outcome and an ordinary one. Remove the fund layer, own the asset directly, and the same underlying ophthalmology business performs differently for the person who owns it, because no one is taking a cut on the way through.

What an Ophthalmology Allocator Should Demand to See

A serious allocator looking at ophthalmology should demand to see the structure that touches the cash flow. Every layer between the operating asset and the investor is a layer that the public market equivalent research suggests may not be earning its keep. The question is not whether ophthalmology is a good business, because the demographics and the surgical economics answer that on their own. The question is how much of the return reaches the investor after the structure takes its share.

Direct ownership of a compounding healthcare asset, with no carry and no ten-year forced exit, is the structure the data quietly argues for. The professor who ran the numbers did not set out to sell anyone an ophthalmology thesis. He set out to measure whether private equity earned its fees, found that on the broadest measure it did not, and in doing so made the strongest possible case for owning good operating businesses directly. The numbers did the arguing on their own.

What the Ophthalmology Fee Drag Costs Over a Holding Period

It is worth being precise about what this does and does not claim. It does not claim that no private equity fund ever beats the market, because some clearly do, and the dispersion between top and bottom managers in private equity is wider than in almost any other asset class. It claims that the average buyout fund, across the broadest dataset and measured against the S&P 500, returned roughly what the index returned after fees. For an allocator, the practical implication is that capturing private equity's average return requires no fund at all, and capturing better than average requires either rare manager access or a structural edge the fund model does not provide.

The cost of the fee layer is easy to feel once it is put in dollars. On a two percent annual management fee, an investor pays that fee every year on committed capital whether or not the fund has deployed it or returned anything, which over a ten-year fund life compounds to a meaningful fraction of the original commitment before carry is even calculated. Academic work has estimated that the present value of lifetime management fees alone can approach twenty percent of committed capital, roughly equal in magnitude to the twenty percent carry the general partner takes on profits. Two layers of roughly twenty percent each, applied to a return that the research found matched the public index, is the entire explanation for why net-of-fees private equity has struggled to beat a low-cost index fund. The business under the hood may have performed well. The structure consumed the outperformance.

Owning a compounding operating asset directly, in a sector with demographic tailwinds and no carry skimmed along the way, is one version of the structural edge the fund model does not provide. The investor who owns an ophthalmology platform directly pays for management of the business, which is a real and necessary cost, but pays no carry to a general partner and surrenders no slice of the gain to a fund structure on the way out. The same underlying asset, owned without the two layers, simply returns more to the person who owns it. That is not a critique of any individual manager. It is the arithmetic the most cited research in the field laid bare, and it points directly at direct ownership of good businesses as the answer.

This article is for general educational purposes and is not legal or financial advice.

Verdira is a healthcare acquisition platform focused on ophthalmology practices. Physician ownership. Transparent structure. No volume quotas. If you're a practice owner thinking about succession or a physician exploring ownership, we're open to thoughtful conversations.

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