Private equity management fees have hit a 20-year low, according to the latest private capital terms report from Preqin. Buyout funds closed this year or in the market as of June agreed to average management fees of 1.74 percent of committed capital, down from 1.85 percent in 2023 and continuing their steady retreat from the traditional “2 and 20” model.

Fewer exits have meant reduced distributions to limited partners, in turn leading to less capital availability for new fund commitments.

Speaking with the FT, Greg Durst, senior managing director at the Institutional Limited Partners Association, says the industry is readjusting to a shift in negotiating leverage. “Because of that pressure on fundraising, [managers] are going to make concessions on fees and terms,” notes Durst, adding that LPs are being “very slow and judicious about how they’re going to be making new commitments.”

It’s a familiar story at this point in the cycle, but it may not be the full picture.

This month’s data readout shows that venture capital management fees have actually seen a slight uptick, from 2 percent to 2.05 percent. That’s despite relatively worse distributions for early-stage investors: less than 10 percent of 2021 vintage funds have had any DPI after 3 years, according to Carta data.

Another factor impacting later-stage fees might be the more micro-level dynamics at play between LPs and certain fund managers.

Management fees by fund size, in millions, data per Preqin Pro

Fee compression has been varied across different segments of the market — larger managers with diversified platforms have taken lead in fee reduction through multi-strategy fee arrangements that encourage more concentrated relationships with investors across their various offerings.

Durst describes a sort of volume discount: “If you’re in one, you’re in for a 2 percent management fee. If you do three, you’re in for 1.75 [percent].”

Smaller firms and emerging managers have had a harder time. Lower operating leverage can mean less room to cede ground on management fees, leading to worse terms than larger peers.

But scale also matters for limited partners. On the other side of the table, an outsize share of fee compression economics tends to accrue to the largest investors. LPs issuing checks in the eight-to-nine-figure range will naturally hold more sway in negotiations than smaller investors.

On the bright side for GPs, performance fees haven’t budged. After hurdles, managers’ share of profits is still close to its 19.5 percent average over the last two decades.