Private Equity: Fees Falling but Future is Bright

Over the past several years, valuations have gone through the roof, which is good if you’re selling a business, but will inevitably hurt private equity firms deploying capital (unless valuations remain at these high levels for several more years). At the same time, LPs are becoming more concerned with the fees being charged by GPs. Funds that have not performed in the top quartile are likely going to be faced with either raising a smaller fund or reducing their fees (many are shifting toward 1.5/15 model). If GPs are really struggling to raise money, they may need to both cut fees and raise a smaller round.