Private equity partnership fees and terms for funds in the market in 2018 and 2019 were highly uniform, indicating managers had significant bargaining power, according to an analysis released Thursday by Callan.
"Of course, that may change as the impact of the COVID-19 pandemic resets the dynamics of the private equity market," the "Private Equity Fees and Terms Study" noted.
Some 76% of the 90 partnerships reviewed were buyout funds and 80% of the sample were North American funds.
Among the findings was that the general partnership commitment to a fund was 3%, with higher commitments reflecting investment of the manager's balance sheet capital. The average GP commitment was 4.3%
The median management fee during a fund's investment period — typically the first five to six years of a fund's life — was 1.75%, almost always (94%) on committed capital. Management fees then dropped to a median 1.5%, with 84% paid on invested capital. Eleven percent of post-investment period management fees were paid on committed capital. However, 17% of funds maintained the same management fees during the fund's entire term. The average investment-period management fee was 1.76%.
Nearly all (94%) of the funds provided a 100% offset against management fees for transaction, monitoring or other fees received by the fund. The remainder provided an offset of 80%.
The median carried interest was 20%, while the average was 20.3%, with a maximum of 30%. The median hurdle rate — the return managers must earn before realizing any carried interest — was 8%. The average hurdle was 6.8%. Some 13% of funds, primarily growth equity and venture capital, did not have a hurdle rate.
