Private equity management fees hit new low in 2025

The private equity industry has witnessed a significant shift in recent years, with management fee rates reaching historic lows. According to data from Preqin, private equity firms that raised funds in 2025 charged an average management fee rate of 1.61% of assets, marking a substantial decline from the traditional 2% fee that has long been the industry standard.

This downward trend can be attributed to several factors, including a challenging fundraising environment that has prompted many managers to offer fee discounts to secure commitments. Despite these challenges, the industry still managed to raise an impressive $507 billion in aggregate capital across 856 funds during the first three quarters of 2025, a figure that is expected to remain relatively consistent with the previous year’s total.

Consolidation and the Rise of Larger Funds

The increasing prevalence of larger funds has also played a significant role in driving down management fee rates. In 2025, nearly 46% of the capital raised was contributed by the 10 largest funds, up from 34.5% in 2024. This shift towards larger funds has enabled them to spread fixed costs, such as compensation, compliance, and technology, over a broader base, resulting in lower fee rates.

However, it’s essential to note that lower fee rates do not necessarily translate to reduced fee dollars. Larger funds can still generate substantial revenue despite lower management fee rates, thanks to their significant assets under management. This trend is expected to continue, with Preqin’s Brigid Connor predicting that private-equity fee compression will persist in the near-to-medium term, driven primarily by the growing size of funds.

Implications and Future Outlook

The private equity industry’s fee structure is likely to remain under pressure, with some speculating that fees could eventually fall to levels comparable to those of actively managed, public equity strategies. However, Connor notes that it’s uncertain whether fund sizes will grow large enough to reach this point.

In addition to management fees, incentive fees, which are typically paid when assets are sold or taken public, have also been impacted by the current market environment. The backlog of buyouts from 2020 and 2021, combined with higher interest rates, has increased the cost of capital, making it more challenging for managers to collect sizable incentive fees. Nevertheless, there is optimism that the gap between buyers and sellers of assets will narrow in 2026, potentially leading to improved realization rates and a more favorable environment for private equity firms.