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April 19, 2007

Alternative investment fees under pressure

Steve Rosenbush

Pension funds and other big investors have been saying for some time that hedge fund fees are too high. Now private equity funds are coming under the same sort of pressure. "Private equity management fees have come under the
spotlight recently, with increasing comment in the press
about the absolute levels of management fees that (limited partners) pay
on their investments," market researcher Private Equity Investor says in a new report. The base fee is 2%, but additional fees can be charged if a fund hits certain benchmarks, pusing fees to the 5% range, the report says.
The report says the critics overlook the fact that private equity is a labor intensive form of investment, in which funds are heavily involved in restructuring and running the firms they buy. Higher fees reflect that work. The key is whether the returns are satisfactory, whether the fees are comparable to those charged by other funds, and whether fund managers and investors interests are aligned.
That may be true. But private equity returns have likely peaked. And if that's the case, I wouldn't be surprised to see fees heading lower as well.

05:33 PM


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