91% of LPs think mega Buyout managers should cut mgmt. fees: survey

On the eve of the annual Canadian Venture Capital & Private Equity Association AGM, it shouldn’t be a surprise to come across a survey of institutional limited partners regarding the annual fees that mega Buyout firms charge their limited partners (via AltAssets):

General partners at $1bn or larger mega buy-out funds should take a cut in management fees, according to respondents to a recent AltAssets poll.

A majority of voters (30.9 per cent) believe that general partners at mega funds – such as those managed by Carlyle, Blackstone, KKR and TPG – should take a cut in management fees from the industry standard of two per cent, to between just 0.5 and 0.9 per cent.

A small minority (3.6 per cent) feel that management fees at the larger scale funds should remain at two per cent, whilst 5.5 per cent think fees should actually increase.

Most surprisingly, 12.7 per cent of respondents believe that GPs at mega funds should not be amassing any management fees in the current economic climate, but should just rely on carried interest.

General partners earn money based on the performance of the fund they manage, which typically amounts to 20 to 25 per cent of the annual profits of the fund. This carried interest is a means to incentivise fund managers and motivate them to optimise their fund’s performance.

Management fees, on the other hand, are paid by limited partners to fund managers to cover management costs. This fee is taken as a percentage of the commitments to that fund.

A staggering 90.9 per cent of those who took part in the poll believe that GPs should take a cut in such fees to below two per cent.

MRM