This year’s continued fundraising struggles have prompted GPs to offer increasingly aggressive fee concessions as they attempt to secure new commitments.
Early-bird breaks on management fees, transaction fee givebacks, volume discounts, and tighter expense caps have become routine and are accelerating the longer-term trend of private capital fee compression.
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Over the June LTM period, private equity strategies raised just $592 billion, the lowest tally in seven years, according to Preqin.
PitchBook estimates that through the first half of 2025, 146 private equity funds closed on $149 billion; on current pacing, full-year totals are set to fall below the $333.4 billion raised in 2024 and well under the 463 funds that held a final close last year.
With fees and terms one of the few levers that managers can pull, steep discounts are starting to become the norm.
“Margins have been (and will continue to be) compressed,” notes Bain & Co.’s mid-year industry update. While the standard “2 and 20” endures on paper, Bain writes that concessions have “already reduced average net management fees by as much as half since the global financial crisis.”
Coinvestment, typically fee-free or reduced fee, has also become a core (and even expected) part of the pitch and a major driver of blended-fee compression. According to a StepStone survey of 145 GPs, coinvestment volume is up around 30 percent since before the pandemic.
Driving current fundraising struggles is the same trend that’s been beaten to death as a talking point over the past 24-months: a lack of liquidity and weak distributions are preventing LPs from putting new cash to work.
A knock-on effect from this absence of exits is that managers are now facing longer waits for carry realization in existing funds. That’s also assuming they get carry at all—extended holds have increased the cash-on-cash returns required to hit returns hurdles. The result is that managers are dealing with pressure on performance-related economics in existing funds while simultaneously accepting worse terms on new vehicles.
This year’s sole fundraising bright spot might also be the source of a new set of concerns: there’s a possibility that the retail channel will only accelerate pricing pressure as it drives convergence of private and public markets.
Retail “raises the prospect of something entirely new for private capital: the proliferation of very large firms that charge lower fees for simply tracking the market (beta) vs. trying to beat it (alpha),” writes Bain. “Traditional wealth managers set the lowest possible cost for everything, which is why fees in that space have declined more than 2 basis points per year over the past 30 years, on average, cutting open-end mutual fund and ETF fees by over half.”