Working Paper: NBER ID: w29887
Authors: Juliane Begenau; Emil Siriwardane
Abstract: We study how investment fees vary within private-capital funds. Net-of-fee return clustering suggests that most funds have two tiers of fees, and we decompose differences across tiers into both management and performance-based fees. Managers of venture capital funds and those in high demand are less likely to use multiple fee schedules. Some investors consistently pay lower fees relative to others within their funds. Investor size, experience, and past performance explain some but not all of this effect, suggesting that unobserved traits like negotiation skill or bargaining power materially impact the fees that investors pay to access private markets.
Keywords: Private Equity; Public Pensions; Investment Fees; Fee Variation; Negotiation Skills
JEL Codes: G11; G23; G24; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| different fees (R48) | different net-of-fee returns (G19) |
| investor size, experience, and past performance (G11) | fee differences (G29) |
| unobserved traits (negotiation skill, bargaining power) (C79) | fee differences (G29) |
| investor demand (G19) | use of multiple fee schedules (R48) |
| fixed-effects regression (C23) | rejection of null hypothesis of random tier assignment (C90) |
| certain funds and fund managers (G23) | use of multiple fee structures (D49) |
| public pensions (H55) | lower fees (G29) |