Fee Variation in Private Equity
65 Pages Posted: 24 Feb 2020 Last revised: 20 Jan 2023
Date Written: September 16, 2022
We study how investment fees vary within private-capital funds. Net-of-fee return clustering suggests that most funds have two tiers of fees, and we decompose differences across tiers into both management and performance-based fees. Managers of venture capital funds and those in high demand are less likely to use multiple fee schedules. Some investors consistently pay lower fees relative to others within their funds. Investor size, experience, and past performance explain some but not all of this effect, suggesting that unobserved traits like negotiation skill or bargaining power materially impact the fees that investors pay to access private markets.
Keywords: Pension Funds, Private Equity, Fee Dispersion, Search and Negotiation Frictions
JEL Classification: G23, G24, G51
Suggested Citation: Suggested Citation