Private equity management fees reach new low in 2025

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

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

There are several reasons for this trend toward cost containment – ​​and not all of them are disastrous. Of course, the industry has had a tough few years when it comes to fundraising, forcing many executives to offer fee reductions to secure their commitments. Even so, the sector raised $507 billion in total capital across 856 funds in the first three quarters of 2025, which is expected to be essentially the same amount as in 2024, when the last quarter of the year is counted, according to Preqin.

In response to a challenging fundraising environment, managers have consolidated and capital is increasingly being directed to the largest funds. Nearly 46% of capital raised in 2025 was raised by the 10 largest funds, compared to 34.5% in 2024, according to PitchBook.

The increasing prevalence of larger funds also explains the compression of fees. Funds seeking more than $1 billion helped bring down the average, while mid-market and newer smaller firms charged closer to that 2% figure, according to Preqin data. Larger funds can spread fixed costs – such as compensation, compliance and technology – over a broader base. In other words, just because the fee rates are lower doesn’t mean the amount spent is 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 main driver of this trend is the increase in fund size.”

However, Connor said it was unclear whether fund sizes would increase enough to the point where private equity fees would fall to the level of actively managed public capital strategies.

Preqin does not detail incentive fees, which are typically paid when assets are sold or made public, in proportion to appreciation. However, so-called achievements have been subdued in recent years after a wave of buyouts in 2020 and 2021 created a significant backlog. Rising rates have increased the cost of capital – a hurdle for managers looking to monetize assets at higher valuations than they paid for them.

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

Many expectations could change in 2026 – especially if the Federal Reserve cuts rates several more times – and the gap between buyers and sellers of assets continues to narrow.