Private equity management fees hit a new low in 2025

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

Buyout funds from last year asked investors to pay an average rate of 1.61% of assets, according to data through June from Preqin, which was published in a December report. This is much lower than the old 2% management fee that the industry has been known for since its inception.

There are several reasons for this trend towards fee compression – and not all of them are serious. Naturally, the industry has had a difficult few years in fundraising, which required many managers to offer fee reductions to secure commitments. However, the industry raised $507 billion in total capital across 856 funds during the first three quarters of 2025, which is expected to be the same amount in 2024, when the final quarter of the year is counted, according to Preqin.

In response to the challenging fundraising environment, managers have consolidated their efforts and capital is increasingly moving towards larger funds. Nearly 46% of capital raised in 2025 was raised by the 10 largest funds, up from 34.5% in 2024, according to PitchBook.

The rise in the spread of large funds is also a reason for fee compression. Preqin data shows that funds seeking more than $1 billion contributed to the average reduction, while mid-market companies and newer, smaller firms were closer to the 2% figure. Larger funds can spread fixed costs – such as compensation, compliance and technology – over a broader base. In other words, just because toll rates are low doesn’t mean toll fees are low.

“In the near to medium term, we expect private equity fee pressure to continue,” Preqin’s Brigid Connor wrote in the report. “We believe the biggest driver of this trend is increasing box sizes.”

However, Connor said it is unclear whether fund sizes will grow large enough to the point where private equity fees fall to the levels of actively managed public equity strategies.

Preqin did not provide details on incentive fees, which are typically paid when assets are sold or taken public, as a percentage of the upside. However, the so-called achievements over the past few years have been overlooked after the onslaught of acquisitions during 2020 and 2021 led to a significant accumulation. Higher interest rates have increased the cost of capital, representing a headwind for managers seeking to monetize assets at higher valuations than they paid for them.

This dynamic has created a challenging environment for fundraising and has made it difficult for managers to collect large incentive fees.

There are broad expectations that could change in 2026 – especially if there are several interest rate cuts by the Federal Reserve – and the gap between buyers and sellers of assets continues to narrow.