The state of fees

SCM Strategic Capital Management's sixth annual terms and conditions study surveyed 406 private equity funds, representing a range of strategies, sizes and geographies. The fundraising climate didn't truly drop off until the fourth quarter of 2008, so the effects of the financial crisis are not yet fully reflected in the results. For this reason, the results of the survey's analysis of characteristics of management fees remains oddly positive: fewer funds chose to reduce their management fees after the investment period, mega funds increased their management fees, and fewer funds charged fees below 1.61 percent. One suspects however that next year's statistics will not be as rosy.

SCM Notes: “As in previous years, most funds proposed their management fee in the range of 1.91 percent to 2.2 percent of the committed capital. Compared to 2007 the overall share of this range increased relative to funds charging management fees of between 1.61 to percent 1.90 percent.

SCM Notes: “Although funds at the lower end reduced their average management fees compared to 2007, funds in the range of $501 million to $5 billion and mega-funds above $10 billion even increased their average fees. We already saw a trend in 2007 that larger funds kept their fees constant even when raising a bigger fund.”

SCM Notes: “As in 2007, the share of funds reducing their management fee rates after the investment period declined again. The majority of funds kept their fee rates constant over the whole fund life. More than 50 percent of these funds were either venture capital or balanced funds. However, although the fee percent age may not change during the fund life, more than 70 percent of the funds do change their calculation base once the investment period is over.