Private markets fees, including those for direct lending strategies, are seeing significant reductions as pricing pressure spreads across the sector, according to a new survey by bfinance.

Consultant bfinance’s fee analysis and global limited partner (LP) survey identified cost reductions across several public and private asset classes since the early 2020s.

It found that direct lending strategies have seen the most pronounced fee compression, with two-thirds of LPs reporting significant fee reductions over the past three years. Nearly half cited lower fees in infrastructure and real estate, while 39 per cent reported reductions in private equity.

The research by bfinance comes as industry sources told Alternative Credit Investor at the beginning of the year that private credit management fees were coming under pressure as the market had grown more competitive and attracted “big ticket” LPs.

Sources told ACI that LPs are demanding fee reductions or even a cut of management fees in order for general partners to clinch the deal.

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“Fee declines in the 2010s were largely driven by public market passive competition, smart beta adoption, and the low-rate environment,” said Olivier Cassin, managing director at bfinance. “Today’s pricing pressures are more closely linked to private markets performance challenges, fundraising difficulties, and evolving competitive dynamics.”

Compared with public markets, private markets fees were broadly stable at the start of 2020, while public market fees have been declining for nearly two decades. bfinance said that trend is now beginning to spill over into alternatives.

The research found that private markets searches have remained broadly flat, but the consultancy said actual fees available to investors are falling more quickly, driven by first-close discounts and fee holidays that do not appear in headline benchmarking data.

“Managers are increasingly using discounts, fee holidays, first-close incentives and other mechanisms that may not be visible in benchmarking data,” said Kieren Bussey, senior associate, portfolio solutions. “In many cases, real pricing is moving faster than formal fee schedules suggest.”

bfinance also found a widening gap between investor segments, with large, established institutional allocators being best positioned to benefit from negotiating leverage, while smaller institutions and newer wealth-sector entrants have less access to favourable terms.

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