LONDON, Oct. 22, 2024 (GLOBE NEWSWIRE) -- Today Preqin, the global leader in alternative assets data, tools, and insights, published its annual Private Capital Fund Terms Advisor report. In the report, Preqin analysts review the effect of the fundraising environment on private capital fees and terms, as well as how the headline management fees differ from net fees paid. Outside of venture capital (VC) and infrastructure where mean fees are above their historical averages, mean management fees for private equity, private debt, and real estate are close to the low end of their 20-year ranges owing to fundraising pressures in 2024.
Recent fundraising conditions impact investor capital commitments and fund managers’ fees and terms
After private market fundraising peaked at nearly $1.5tn in 2021, fundraising fell 20% to under $1.1tn in 2023. For instance, while infrastructure fundraising outcomes improved by this year, private debt fundraising is not forecast to see an upswing until 2026 and private equity until 2027*. A long stretch of fundraising headwinds – variable by asset class and region – have affected fund fees and terms.
Brigid Connor, lead author of the report, Research Insights, at Preqin says, “Fundraising headwinds can be traced to interest rate hikes and the current higher-for-longer environment. The higher rates are linked to lowered valuations and a slower exit environment, which has put pressure on distributions. In turn, the distribution drought means that investors have less capital to commit to new funds while fund managers find themselves making concessions in fees and terms to meet fundraising targets.”
Additional key findings include:
- Private equity: For vintages 2024 and raising funds, mean management fee rates look more favorable for investors, reaching 1.74% for buyout and 1.93% for growth equity compared to 1.85% and 1.97% in 2023, respectively. This trend in fees represents a decline for the second year in a row. Given the fundraising pressure forecast through 2026, mean buyout fee rates could decrease for the next two years Preqin data shows.
- Privat debt: For raising, and closed 2023 and 2024 funds, mean private debt management fee rates are on average the second lowest fee rates in private markets, close to those of real estate. Direct lending funds have the lowest mean investment period (IP) headline rates among direct lending, mezzanine, special situations, and distressed debt strategies. Over the past 10 years, mean and median IP management fees for direct lending have stayed close around 1.5%. For non-direct lending private debt funds over the same period, the mean rate has fluctuated around 1.7% with the median bouncing frequently between 1.75% and 2%.
- Real estate: Buyout and real estate mean management fee rates are extreme examples at 1.74% and 1.31%, respectively, with the lowest reading in 20 years. Preqin analysts note that other dynamics play a role in headline fee rates, such as fund size.
- Venture capital: Management fee rates for VC** funds are the highest among all asset classes. Since 2012, the median IP management fee rate has stayed consistently at 2%, while the mean fluctuated around 2%. For 2024 funds closed and those still raising, there has been a slight uptick to a median of 2.05% and mean of 2.24%.
- Infrastructure: Infrastructure mean management fee rates crested above 2% in 2023, but have declined based upon their relationship to fundraising. Mean management fee rates in infrastructure are more volatile than in other asset classes, with fee rates more sensitive to fundraising dynamics.
Methodology
The Private Capital Fund Terms Advisor 2024 report draws on Preqin Pro and Freedom of Information Act (FOIA) data. It also includes data from Preqin’s Term Intelligence, one of the largest searchable databases of Limited Partner Agreement (LPA) terms globally and enables enhanced private fund negotiations, providing information on fee rates, discounts, expense allocations, and carry escrow provisions.
Notes to the editors
* According to Preqin’s Future of Alternatives 2029 report.
** VC fees are distinct for a few reasons: 1) VC funds are on average much smaller than other private capital funds, meaning there is a smaller base for management fees; 2) VC rewards risk taking, and the performance fees can be structured to reward outstanding performance; and 3) there is less negotiating around VC terms.
For more information, and to receive a full copy of the report contact, Mimi Celeste Taylor at mimiceleste.taylor@preqin.com
About Preqin
Preqin, the Home of Alternatives™, empowers financial professionals who invest in or allocate to alternatives with essential data and insight to make confident decisions. It supports them throughout the entire investment lifecycle with critical information and leading analytics solutions. The company has pioneered rigorous methods of collecting private data for over 20 years, enabling more than 200,000 professionals globally to streamline how they raise capital, source deals and investments, understand performance, and stay informed. For more information visit www.preqin.com.
