Despite growing pressure from investors, just under two thirds of infrastructure funds still charge management fees of two per cent, raising questions as to whether or not interests between fund managers and investors are properly aligned.
When I see articles such as these, I wonder to my self as to which institutional investors still abide by 'industry standard' fees such as the 2/20 model for private equity. The private equity sector has grown considerably over the past decade in terms of both number of deals executed as well as the number of funds in operation. Private equity fee structures have also matured over these years. Management fees are increasingly based on yearly budgets rather than fixed percentages and carried interest is now so very much dependent on performance, its become hard to identify institutional investors going with a traditional 2/20 model these days.
Competition, coupled with a tough economic environment have a way of efficiently restructuring sectors and private equity is no exception. In my view, when carried interest fees in private equity are based on performance rather than fixed standard percentages, it forces GP's to think twice about making hasty acquisition decisions. In particular, a flexible and variable fee standar would be a very effective tool in aligning GP/LP interests in the emerging markets.
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