Private markets fee structures are quietly shifting as fundraising pressure and weak liquidity force managers into deeper discounting, but headline fees are increasingly misleading.
That is the implication of new research from bfinance, based on a snap poll of 84 institutional investors across more than 20 countries, which suggests pricing dynamics in private markets are moving further in favour of LPs, but in ways that are not always visible in standard fee schedules.
More than two thirds of respondents reported “significant” or “moderate” reductions in comparable direct lending strategies over the past three years, making it the asset class where fee pressure appears most pronounced. Nearly half pointed to similar improvements in infrastructure and real estate, while 39% reported fee reductions in private equity strategies.
The consultancy said the findings reflect a shift in bargaining power as weaker distributions and a more challenging fundraising environment force managers to compete more aggressively for commitments.
However, the research highlights that much of the adjustment is taking place outside headline management fee rates.
While respondents most frequently cited reductions in base management fees, many also pointed to a growing divergence between visible fee schedules and actual paid economics, driven by mechanisms such as fee holidays, enhanced early-close discounts and lower tiering thresholds.
At the same time, a minority of investors reported rising non-fee costs, complicating assessments of net fee pressure.
According to the responses, the scale of fee improvement is also uneven across the investor base. Geography appears less important than fund size and strategy exposure, with larger institutional investors more consistently able to negotiate better terms, Kathryn Saklatvala, head of investment content at bfinance, told IPE.
Certain strategies, including impact-focused allocations, were also identified as seeing more pronounced pricing pressure.
The findings come against a backdrop of weaker exits and subdued distributions across private markets, which has increased liquidity constraints for LPs and slowed reinvestment flows.
While the “denominator effect” was a significant driver of allocation pressure in 2022-23, Saklatvala said this has become less relevant more recently, with current liquidity challenges increasingly driven by the pace of cash returned from underlying assets.
Secondary market activity has also contributed to shifting competitive dynamics in fundraising, she added.
In private credit, respondents highlighted evolving approaches to performance hurdles, including the introduction of floating hurdle rates by some managers, alongside modest increases in hurdle levels in newer funds.
Saklatvala said these changes raise questions about alignment and whether fee structures are adapting sufficiently to a higher interest rate environment.
Bfinance will publish further analysis in its forthcoming Investment Management Fees Report, due this month, which will examine the mechanisms driving private market fee changes and the extent to which they are captured in conventional measurement frameworks.
