A recent analysis reveals that private equity firms which raised funds in 2025 are charging the lowest average management fees recorded, reflecting an ongoing trend in fee reduction. According to data from Preqin, buyout funds launched last year have asked investors for an average fee of 1.61% of assets, significantly lower than the traditional 2% that has characterized the industry since its inception.
Several factors have contributed to this trend of fee compression. The fundraising environment has been particularly challenging, prompting many managers to offer discounted fees to attract investors. Despite these hurdles, the industry raised an impressive $507 billion across 856 funds in the first three quarters of 2025, indicating stability comparable to the previous year, according to Preqin. A notable shift has occurred, with nearly 46% of capital raised in 2025 captured by the ten largest funds, up from 34.5% in 2024. This consolidation is influencing fee structures, as larger funds can distribute fixed costs—such as compliance and technology—over a broader asset base. Consequently, smaller and middle-market firms continue to charge fees closer to the traditional 2%.
Preqin’s Brigid Connor anticipates that this trend of fee compression will continue in the near to medium term, primarily driven by the growth in fund sizes. However, uncertainties remain regarding whether fund sizes will increase sufficiently to bring private equity fees in line with active public equity strategies. Additionally, while incentive fees associated with asset sales have been muted due to a backlog from prior buyouts, a potential shift in the economic landscape, particularly through Federal Reserve rate cuts, could bring renewed opportunities for capital realization in 2026.
Why this story matters: The declining management fees indicate a shift in the private equity landscape and could have implications for investor returns.
Key takeaway: Larger private equity funds are increasingly dominant, contributing to lower average management fees.
Opposing viewpoint: Some smaller firms argue that their ability to provide tailored services is at risk due to fee pressures and consolidation within the industry.
