Management fee levels remain unchanged

Despite industry pressure for GPs to reduce their management fees, over two thirds of fund managers are charging the same fee rates from fund to fund, according to research from Proskauer.

Over two thirds of private equity firms have kept their management fees for new funds at the same level as their prior funds, both during and after the investment period, according to fresh research from Proskauer.

The law firm revealed the findings of its research, which compared limited partner agreement (LPA) terms of 30 funds raised in the last 18 months to the LPA terms in prior funds, at its annual breakfast seminar held this week.

Despite the pressure GPs face from investors to reduce management fee rates, 22 of the 30 funds studied by Proskauer kept their management fees during the investment period consistent from fund to fund, according to the research.

Two of the firms studied increased their management fees during the investment period from one fund to the next, while the remaining three offered optional fee rates to investors based on distribution waterfall mechanics.

Of the 30 funds, the only three that decreased their management fees from fund to fund were also the only three that increased in fund size.

Post investment period, 24 of the 30 funds kept their management fees at the same level as their prior fund. One firm increased its fee rate while two offered optional fee rates to investors and three decreased their management fees.

“2015 saw a strong focus on management fees during the investment diligence,” Nigel van Zyl, partner at Proskauer, told delegates at the briefing.

Of the 30 funds, 28 involved in the research were listed as private equity funds with a European focus. The sizes of the funds ranged from approximately €200 million to €11 billion.

During the seminar, Proskauer also mentioned the pressure GPs are under to disclose more details on fee changes and explain why a particular fee is being charged to the fund rather than the GP.

“The onus is now on the GP to be prepared and straight forward about fees,” Steven Batchelor, director of client services and fundraising at HgCapital, told delegates.

However, Batchelor says HgCapital is expecting to be questioned more about fees. “[Fee disclosure] is not unreasonable, it’s probably also overdue. If you [GPs] can justify it, it is not a problem.”