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. This 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 more concerned with the fees being charged by GPs. Funds that have not performed in the top quartile will most likely face two scenarios: 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.