INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media
INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media
INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media
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fees<br />
institutional<br />
investor<br />
sentiment<br />
survey<br />
Should management fees be reduced after a fund’s investment<br />
period has concluded?<br />
n 90% Yes<br />
n 10% No<br />
foreword<br />
executive summary<br />
allocation<br />
• fees<br />
lp – gp relationship<br />
future investments<br />
and concerns<br />
appendix: global<br />
fundraising<br />
Source: Private Equity International<br />
Unsurprisingly, a vast majority of LPs (90 percent) believe that management fees should<br />
be reduced following the conclusion of a fund’s investment period. Management fees are<br />
intended for fund managers to cover their overhead and salary costs, generally in the range<br />
of 1.5 to 2.5 percent of the fund’s committed capital per annum, and are expected to be<br />
scaled down in the later years of a fund’s life. Many small and mid-market firms require<br />
management fees in order to support their deal teams while larger private equity firms<br />
justify their fees due to sourcing deals globally with an office presence across different<br />
regions. In addition, some brand-name firms state that their exceptional performance<br />
justifies a premium over market-rate fees. However, ILPA argues that “management fees<br />
should be based on reasonable salaries, as excessive fees create misalignment of interest”.<br />
Many fund managers are unable to afford operating with lower management fees and<br />
rather than lower their fee, choose to negotiate other concessions in order to entice LPs<br />
to invest with them.<br />
page 11<br />
www.privateequityconnect.com