Private equity management fees to hit new low in 2025

A version of this article appeared in CNBC's Inside Alts newsletter, a guide to the fast-growing world of alternative investments, from private equity and private credit to hedge funds and venture capital. Register to receive future issues, directly to your inbox.

Private equity firms that raised funds in 2025 charged the lowest average management fee rates ever recorded, continuing a multi-year downward trend.

Buyout funds from last year's crop asked investors to pay an average rate of 1.61% on assets, according to data through June from Preqin, published in a December report. That's well below the 2% legacy management fee the industry has been known for since its inception.

There are a few reasons for this trend toward rate compression, and not all of them are dire. Of course, the industry has experienced a difficult few years in fundraising, forcing many trustees to offer fee discounts to secure commitments. Still, the industry raised $507 billion in aggregate capital across 856 funds during the first three quarters of 2025, which is expected to be essentially the same amount as in 2024, when the final quarter of the year is accounted for, according to Preqin.

In response to a difficult fundraising environment, managers have been consolidating and capital is increasingly directed toward larger funds. Nearly 46% of capital raised in 2025 was made by the 10 largest funds, up from 34.5% in 2024, according to PitchBook.

The increase in the prevalence of larger funds is also the reason why fees are being reduced. Funds seeking more than $1 billion helped drag down the median, while mid-market and newer, smaller companies charged closer to that 2% figure, Preqin data shows. Larger funds can spread fixed costs – such as compensation, compliance and technology – across a broader base. In other words, just because fares are lower doesn't mean fare dollars are lower.

“In the short to medium term, we expect private equity fee compression to continue,” Preqin's Brigid Connor wrote in the report. “We believe the biggest driver of this trend is the increase in fund size.”

However, Connor said it's unclear whether the size of the funds will grow enough to the point where private equity fees fall to the levels of actively managed public equity strategies.

Preqin does not break out details on incentive fees, which are typically paid when assets are sold or go public, as a proportion of appreciation. However, so-called completions have been muted in recent years after a flurry of acquisitions during 2020 and 2021 created a considerable backlog. Higher rates have increased the cost of capital, a hurdle for managers looking to monetize assets at valuations higher than what they paid for them.

That dynamic created a challenging fundraising environment and also made it more difficult for managers to raise sizable incentive fees.

There is widespread expectation that this could change in 2026 – especially if there are several more rate cuts from the Federal Reserve – and the gap between buyers and sellers of assets continues to narrow.