Asia's private equity funds are moving closer to North American and European peers in key areas, but despite a tight fundraising climate they still charge higher management fees than their global peers, a new survey has found.
Private equity firms are normally paid what's called a 2-and-20 fee, or a 2 percent management fee on the capital invested and 20 percent of the profits when companies are sold.
The 2 percent fee is contentious, particularly when fund sizes run into the billions of dollars, but as investors prune their exposure to alternative assets amid the economic downturn, they have been calling the shots and winning concessions on fee structures.
In Asia though, management fees are at or near the traditional 2 percent level, and decreased only slightly from the year earlier, according to a new survey of over 100 private equity funds actively raising money in 2011 from Asia-based private equity investment firm Squadron Capital.
While much of that is because Asia's funds are usually smaller than their peers in North America and Europe, the survey said, Asian funds with assets under management over $1 billion remain closer to the 2 percent level, higher than global peers.
Asia's funds are offering concessions in other areas though, in a sign that fundraising is getting tougher.
The concessions include an increase in "sweetheart deals", where preferential fees are offered, particularly to get early investors into a fund, and build momentum for a fundraising.
The level of Asia funds offering sweetheart deals rose to 20 percent from 6 percent the year earlier, the survey said.
This article is copyrighted by Reuters
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