Private Equity Fees Fall In Harsh Economic Climate - Survey

Tom Burroughes Editor London 3 July 2009

Private Equity Fees Fall In Harsh Economic Climate - Survey

As the credit crunch has hit the private equity sector, so these funds have been forced to cut fees paid by investors, according to a report by Preqin.

Among the findings of the report, it found that 43 per cent of investors it polled saw a power shift towards the limited partner when negotiating terms and conditions. Some 90 per cent of placement agents polled advising clients to change terms in favor of LPs.

The average management fee for buyout funds currently in the market is seen falling by 20 basis points compared with most recently closed funds. The mean management fee for most recent venture funds has also fallen by 15 basis points.

The sample used for the publication and analysis covers over 1,200 vehicles, Preqin said.

Private equity funds have typically charged fees similar to those of hedge funds: a 2 per cent annual management fee and a 20 per cent performance fee on top, although individual fees can vary, with some of the biggest funds levying a smaller annual management charge.

“The results of Preqin’s survey clearly show that investors are becoming increasingly concerned with terms and conditions. Placement agents are advising their clients to alter proposed fees in favour of the LP, and Preqin’s analysis of terms and conditions demonstrates that general partners are listening,” the report said.

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