The cost of investing in private markets may be falling amid intense competition for funding and recent performance difficulties, according to new research.
Consultancy firm Bfinance has reported that fees charged across several asset classes have fallen significantly over the past few years as pricing power has shifted in favour of asset owners such as pension funds.
A survey of investors in private markets found that direct lending strategies had shown “considerable fee reductions” over the past three years.
Almost half of the respondents also said they had seen reductions in infrastructure and real estate investment costs, while more than a third said there had been reductions in private equity fees.
“Pricing pressures are linked to private markets performance challenges, fundraising difficulties, and evolving competitive dynamics.”
Olivier Cassin, Bfinance
Olivier Cassin, managing director at Bfinance, said: “Fee declines in the 2010s were largely driven by public market passive competition, smart beta adoption, and the low-rate environment.
“Today’s pricing pressures are more closely linked to private markets performance challenges, fundraising difficulties, and evolving competitive dynamics.”
Kieren Bussey, senior associate in Bfinance’s portfolio solutions team, added that there was a “growing divergence” between the fees publicly quoted and those actually paid by investors.
“Managers are increasingly using discounts, fee holidays, first-close incentives and other mechanisms that may not be visible in benchmarking data,” Bussey said. “In many cases, real pricing is moving faster than formal fee schedules suggest.”
Larger institutional investors are more likely to secure meaningful discounts than smaller institutions, Bfinance found.
Active bond managers under pressure from ETFs
Bfinance’s research also found that active managers in listed fixed income were coming under pricing pressure from exchange-traded funds (ETFs).
Higher interest rates were putting pressure on performance, the consultancy reported, which in turn was pushing investors towards active fixed income ETFs, which generally have greater liquidity and lower charges.
Meanwhile, in equity markets, Bfinance found that global emerging market equity fees had fallen by approximately 13% over the past four years, based on data from manager searches. It also noted a 12% decline in the average cost of a European high-yield credit strategy over the same period.
“The conversation is no longer simply about whether fees are falling,” Cassin said. “The more important question is who is benefiting, where the real savings are occurring, and whether investors have the visibility needed to assess value for money.
“As pricing structures become more complex, robust benchmarking and governance remain critical.”
