Private equity funds in Asia charged higher management fees than their global competitors despite a tough fundraising climate, according to a survey from Squadron Capital.
In Asia, private equity firms are charging management fees at or close to the traditional 2 percent level, which in a global context is at the higher end. Generally, firms in other regions have been more amenable to reducing fees in order to attract investment.
The majority of funds in Asia that are charging annual fees in excess of 2 percent are sub-$200 million funds.
According to Squadron, the higher fees derive from “the combination of smaller average fund sizes in Asia and the fixed costs of fund management irrespective of size”. Thus, “GPs might not necessarily be generating annual fee income levels in excess of their likely cost bases”, the firm said.
In addition, funds in Asia are increasingly providing concessions for investors to attract funding.
One of the concessions is a “sweetheart deal”, where preferential fees are offered to get investors on board early. The proportion of Asia funds giving sweetheart deals grew to 20 percent from 6 percent the previous year, the survey noted.
Asia’s annual fundraising totals were up by 23 percent to about $30 billion in 2011, according to figures from sister data company Private Equity Connect.
But in the first quarter of 2012, fundraising totals dropped 54 percent compared to the same period last year, according to data from Thomson Reuters.