A view of the New York Stock Exchange (NYSE) on Wall Street in New York City on November 13, 2024.
Angela Weiss | AFP | Getty Images
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Private equity firms that raised capital in 2025 charged record-low average management fee rates, continuing a multi-year downward trend.
Last year’s vintage buyout funds asked investors to pay an average of 1.61% interest on their assets, according to data through June released by Preqin in a December report. This is significantly lower than the traditional 2% management fee that the industry has been known for since its inception.
There are several reasons for this fee compression trend, and not all of them are dire. Of course, the industry has experienced funding difficulties in recent years, with many operators having to offer fee discounts to secure commitments. Still, the industry raised a total of $507 billion across 856 funds in the first three quarters of 2025, which is expected to be about the same amount as in 2024, when the final quarter of the year is tallied, Preqin said.
In response to the difficult funding environment, managers are consolidating, with capital increasingly being directed to the largest funds. Nearly 46% of capital raised in 2025 was raised by the 10 largest funds, up from 34.5% in 2024, according to Pitchbook.
The increasing prevalence of larger funds is also a reason for the compression of fees. Funds seeking more than $1 billion drove the average down, while mid-market and emerging small companies charged closer to 2% of that amount, according to Preqin data. A larger fund allows you to spread out fixed costs such as compensation, compliance, and technology more widely. In other words, a lower commission rate does not necessarily mean lower fees.
“We expect private equity fee compression to continue in the near to medium term,” Preqin’s Brigid Connor said in a report. “We believe the biggest driver of this trend is the increase in fund size.”
But Connor said it’s unclear whether funds will grow large enough to bring private equity fees down to the level of actively managed public equity strategies.
Preqin did not provide details on incentive fees, which are typically paid as part of the valuation when an asset is sold or taken public. However, the so-called “realization” has slowed down in recent years due to a large number of acquisitions from 2020 to 2021, resulting in a large backlog of orders. Rising interest rates are raising the cost of capital, creating a headwind for managers looking to monetize assets at higher valuations than they paid.
These dynamics created a difficult financing environment and made it more difficult for managers to collect large incentive fees.
Widely expected to change in 2026, the gap between buyers and sellers of assets continues to narrow, especially if there are a few more rate cuts by the Federal Reserve.
