Limited partners are gaining increased influence over private equity managers as the industry continues to grapple with slower capital distributions and weaker exit activity, according to a report by Bloomberg citing new research from asset manager Orix.
Orix’s study highlights a shift in the balance of power between fund managers and their investors, with LPs demanding greater concessions as returns and liquidity have lagged historical norms. These include higher general partner commitments to new funds, reduced management fees, and expanded access to zero-fee co-investment opportunities.
Distribution rates across the private equity sector have fallen sharply, with capital returned to investors declining to around 6% of total assets under management last year, compared with an average of 14% over the past decade.
As a result, investors are pushing managers to increase “skin in the game,” with GP commitments to new funds rising from a historical range of 1%–2% to roughly double that level on average, according to industry data cited in the report.
Fee pressure has also intensified. Average management fees in buyout funds have fallen to approximately 1.6%, down from the long-standing 2% standard, marking the lowest levels on record as managers seek to retain institutional capital in a more competitive fundraising environment.
Co-investment structures have likewise evolved, with no-fee participation opportunities increasingly viewed as a baseline requirement for large institutional investors.
Orix noted that prolonged holding periods and slower value creation at portfolio companies are contributing to the delay in distributions. Generating required returns now typically demands stronger earnings growth over ownership periods, alongside greater operational intervention than in previous market cycles.
The findings underscore how tighter liquidity conditions and a more challenging exit environment are reshaping fund economics and strengthening the negotiating position of institutional investors across private markets.
