bfinance: Time to press for better fees in private markets
The new survey of more than 300 investors (Global Asset Owner Survey bfinance, November 2024) indicates that more than 40% believe ‘like-for-like’ fees for Private Equity managers have decreased in the past three years. Two years ago, however, the figure was just 20%. With many GPs under pressure amid slower fundraising and reduced investor satisfaction with performance, is now the time to press for better terms?
Through the 2010s, private market manager fees remained stubbornly resistant to change. While investors could seek creative ways of improving the cost profile—such as introducing a proportion of direct or co-investment that didn’t involve GP fund expenses—the median base and performance fees in all but a few sectors (such as Direct Lending) did not show meaningful improvement.
This stability contrasted with the measurable price declines across a variety of public market and liquid alternative sectors – as discussed in bfinance’s 2024 Investment Management Fees report. Institutional asset owners and their regulators applied vigorous scrutiny to value for money in the aftermath of a Global Financial Crisis that had wiped a huge amount of value off balance sheets and provoked frustration over the perceived imbalance of risk/reward between asset managers and their clients.
In active equity management, firms gave ground amid concerns around outflows (towards passive management, ‘smart beta’ and private markets), with negotiations reinforced by often-mediocre relative performance. Meanwhile, fixed income fees were eroded in a climate of extremely low interest rates. Fund of hedge funds, particularly in Europe, saw considerable price reductions.
Today, however, there are signs that the picture in private markets may be changing. In the 2024 Global Asset Owner Survey, investors were twice as likely to say that Private Equity fees had declined on a like-for-like basis over the past three years than they had been in the 2022 study (from 20% to 41%). That being said, it’s important to note that more than a quarter in each study said that Private Equity fees had risen. In addition, there was no increase in the proportion of investors indicating that fees had fallen in Infrastructure or Private Debt.
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