I’m not really 100% that their accounting truly maps correctly to US private equity accounting. For example. Are the management fees actually deductible from income? Not necessarily. You might think that as being obvious, sure. In US private equity, with expenses and income flowing through on a K-1, they actually aren’t - TCJA killed that in 2018 since that always got classified as “investment advice”. However, for a US mutual fund, then yes, they’re hidden in the mechanics of the fund because the fund is not a pass-through entity. I was going to talk to their accounting firm, but just never got to it, and given work as it is this year, I don’t see getting to it. For last year, I just jammed numbers in since they were relatively small and not worth quibbling. This year, I’m just letting my accountant interpret it and walking away.
The setup fee would come out of YOUR gross yield. Just because it’s on your form doesn’t mean it’s on everyone else’s form. Very specifically, it’s not on my form. Your setup fee is your problem.
Net ordinary income is sitting in the fund’s bank account and continues to be part of the overall fair value of the fund. Please remember that the “dividend” you receive really isn’t. You are taxed based on the income of the fund as it receives it. The “dividend” that goes into your bank account is a “return of capital” of sorts, the same mechanics as you see with various ETFs and funds in the US - “we made X, we’re going to keep Z% of it in our bank account and give (X-Z)% to you to put in your bank account”. What is paid out to you reduces your basis. The only difference here is that you don’t have to keep track of your basis - this is being done for you.
The number you see on your custodial statement from your bank for EUR/share is a statement of net fair value of the shares of the fund as of the latest valuation reported by BC to your depository custodian. In this case, that value is dictated by (actual fair value of the assets) + (cash in bank) - (accounts payable), which will have subtracted out anything that was paid out to you - which then of course shows up in your bank account as cash. That will (hopefully) continue to go up as the fair value of the assets goes up.
If/when BC sells an asset, some of that “unrealized fair value” will become realized, and show up as “cap gain”. Which you will then pay taxes on at the time of realization.
Eventually, you will cash in the shares. Perhaps surprisingly to you, you won’t owe any taxes at that point (except for any gains in the last year) - because you already paid them along the way. It all comes out in the wash.
And if you’re wondering about that 10%(?) incentive fee - for all that the wording would seem to indicate that that’s a cut they’re taking at the end… it’s not. It’s baked into the fee as you go along. The mechanics of this, I do not understand - however, I can state this with certainty as this is how I have experienced this working in practice. I could ask my CFO if people really cared. (And yes, the management fee can actually be negative in the case of losses, to claw that incentive back. Again, I have seen this in practice.)
And yes, you are making a very long term loan to the US Treasury as a result of this. You can claim this is unfair, but that is how this works, and it is not somehow unique to PFICs - this is how this works for all PE in the US.