Among the multibillion-dollar funds charging management fees on total assets are Carlyle Tactical Private Credit Fund, CION Ares Diversified Credit Fund and several from Pimco.

Carlyle and Ares declined to comment; Pimco said no one was available to comment. Industry insiders say a fund manager must also research assets that are purchased with leverage, justifying the management fee on the borrowed money.

You should wonder about that.

The prospectuses of several interval funds say their recent borrowings carry annual interest rates of almost 6% to more than 8.5%. An interval fund that borrows one-third of its total assets could be adding somewhere between 2% and nearly 3% to its annual expenses.

Then, on top of that, some managers charge management fees of 1% or more on the borrowed money.

All this can push an interval fund’s total annual expenses toward 7% annually.

Imagine a leveraged interval fund could buy a private loan with a yield of 12%. After all costs, barely 5% might be left for you.

“The take-home pay of the investors kind of gets cut in half on the leveraged assets, and they’re taking 100% of the incremental risk,” says Stephen Nesbitt, chief executive of Cliffwater, an investment firm based in Marina del Rey, Calif.

Cliffwater offers three interval funds specializing in private debt or equity that manage nearly $26 billion in total—but it charges management fees only on net assets, excluding any money the funds borrow.

Charging fees on the leveraged assets, says Nesbitt, can lead to “a misalignment of interests with investors and an incentive to take risks.”

Pay fund managers to borrow, and they will—driving up costs. That, in turn, can compel the managers to buy riskier assets to overcome the drag of those excess expenses.

Don’t take my word for it: Listen to the funds themselves.

The prospectuses for both the Carlyle and the CION Ares interval funds warn that calculating management fees on total assets, including borrowed money, “may encourage” the managers “to use leverage to make additional investments.”

Each fund’s disclosure adds, in identical wording, that leverage “could result in the fund’s investing in more speculative securities than would otherwise be in its best interests, which could result in higher investment losses.”

What if losses leave you wanting to sell? Typically, so long as investors holding more than 5% of an interval fund’s assets don’t also want to bail, you can take all your money out within any three-month period.

What if everybody else wants out, too? Then it could take approximately five years to get all your money back if you’re able to withdraw the permitted maximum each time.

Leading ETFs investing in public high-yield bonds have yields of 7% to 8% and total expenses well under 1%—without making you wait up to half a decade to get your money out.

Given the high expenses on many interval funds, “after you do the math, you’re at best only a point or two ahead of a [public] high-yield fund,” says Morningstar analyst Brian Moriarty. “And is that extra yield worth the liquidity you give up to get it?”