Asian funds set to maintain high management fees - Squadron

Squadron's analysis finds that management fees - which remains a key focus for LPs globally - will unlikely be lowered beneath the current 2% bar for Asia's billion-dollar-plus funds, which is "contrary to global counterparts which tend to take into account their high [assets under management] base and accordingly to lower fees to a level which is not in excess of their likely cost bases," according to the report, which surveyed nearly 100 private equity firms in the region.

"We believe that this is a matter of supply and demand: demand from investors for Asian funds is growing and many institutional investors are more comfortable investing in larger, more established funds," Squadron's CEO David Pierce (pictured) said. "On the supply side, the number of such funds is limited and so their managers are able to continue charging premium fees."

When employing a 2% management fee, the Hong Kong-based fund of funds accesses that Asia's larger vehicles often garner capital beyond their management costs, which breaches industry guidelines set by the International Limited Partners Association (ILPA). However, in areas such as offsetting income earned from activities related to their portfolio companies against management fees - such as money earned from being board members of portfolio companies, monitoring fees and other services - Asian funds outperform those in the West. Specifically, more than 90% of Asian GPs offset such income 100% of the time, up from 48% this time last year. The global average is currently only 43%.

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• Topics
• LPs
• GPs
• Squadron Capital Advisors