Firms set to earn up to $9bn in ‘dry powder’ fees
Private equity firms could earn as much as $9bn (€6.3bn) this year from the management fees charged on funds yet to be drawn down and invested in deals.
Buyout firms have amassed $450bn of committed money to their funds that has yet to be used, according to data provider Preqin. This so-called “dry powder” of uninvested money has been committed by investors keen to tap into average returns over the past few years of about 25%.
Preqin estimates private equity firms could be paid between about $6.75bn and $9bn on the $450bn.
Private equity firms usually earn between 1.5% and 2% in management fees at the same rate as drawn-down money invested as the equity in buyouts. One manager, who declined to be named, said that level of fees was necessary to defray maintenance costs.
The management fees would partially offset an expected drop in performance fees this year.
Jos van Gisbergen, senior strategist of alternative investments at Dutch pension fund manager Mn Services, one of Europe’s largest investors in private equity, said: “At the large buyout funds we expect flat or negative returns this year and most funds to be negative because fair value accounting means they have to make provisions on their assets.”
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