A recent examination of trends in private equity management fees reveals that firms which raised funds in 2025 have charged the lowest average rates ever recorded. Data through June 2025 indicates that buyout funds from that year requested a mean management fee of 1.61% of assets, marking a significant drop from the industry standard of 2% that has persisted since the sector’s inception.
This decline in fees is part of an ongoing trend, influenced by various factors, including the challenges the industry has faced in fundraising. Many managers, confronted with a difficult market environment, have opted to offer fee discounts as a strategy to attract investors. Despite these challenges, the private equity sector still managed to raise a substantial $507 billion in aggregate capital across 856 funds in just the first three quarters of 2025. Projections suggest that this amount will remain on par with fundraising in 2024 once the final quarter is accounted for, according to Preqin.
A shift toward larger funds has played a significant role in the compression of management fees. Notably, approximately 46% of the capital raised in 2025 was secured by the ten largest funds, a jump from 34.5% in 2024, as reported by PitchBook. This increased concentration of capital among larger funds contributes to driving down mean fee rates. Larger funds have the ability to distribute fixed costs—like those associated with compensation, compliance, and technology—over a wider asset base, which helps explain why the average rates are falling, even as the absolute amount of fees collected remains substantial.
Preqin’s Brigid Connor anticipates that fee compression in private equity is likely to persist in the near-to-medium term, attributing this expectation chiefly to the growth of fund sizes. However, there remains uncertainty regarding whether fund sizes will ever expand sufficiently to align private equity fees with those associated with actively managed public equity strategies.
While Preqin does not provide specific details on incentive fees, which are traditionally tied to asset performance, realizations have been subdued in recent years. A wave of buyouts in 2020 and 2021 created a backlog, and higher interest rates have increased capital costs, posing additional challenges for managers attempting to monetize their holdings at valuations exceeding acquisition prices. This situation contributed to the tough fundraising landscape and impeded managers from securing significant incentive fees.
Looking ahead, market analysts remain hopeful for a turnaround in 2026, particularly if the Federal Reserve enacts additional rate cuts, thereby reducing the disparity between buyers and sellers of assets. Such changes could signal a potential shift in the dynamics of the private equity market, influencing both fee structures and fund performance moving forward.
