Private credit fees rebound to pre-pandemic norms
Private credit fees have returned to pre-pandemic levels for the first time since 2020, reversing a years-long trend of discounts that had squeezed industry margins. Preqin’s latest fund-terms report shows direct-lending funds raised in 2025 charged an average management fee of 1.42% and a median of 1.50%, matching the asset class’s long-term averages from 2005 to 2025. This reverses the post-pandemic period, when managers slashed fees to attract scarce investor capital, with median fees dropping to 1.0% and means falling to historic lows of 1.25% to 1.32%. Competition at the market’s top has now eased, allowing fees to climb—but the true cost to investors remains unclear beyond these headline figures.
The fee increase is not consistent across all fund managers. For funds launched between 2015 and 2019, top- and bottom-quartile managers charged nearly identical fees, averaging around 1.42%. However, for funds raised between 2020 and 2024, the gap widened: top-quartile managers maintained fees near 1.42%, while those in the lower three quartiles charged between 1.24% and 1.29%.
This split reflects a market growing more concentrated, with two-thirds of all private-credit capital raised in 2024 flowing into the 20 largest funds—up from less than half in 2020, according to Preqin. Average fund size has grown for experienced managers, but first-time managers have seen little change, maintaining fund sizes of roughly $120 million over five years. Fee discounts for early investors or large commitments have also shrunk, from 41% of agreements in 2016–18 to just 33% in 2022–24.
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Pension funds warn of overvaluation risks
Mark Steed, chief investment officer of the $25.8 billion Arizona Public Safety Personnel Retirement System, said pension money pouring into private credit in recent years has “got out of hand,” loosening underwriting standards across the industry. “There’s going to be a shakeout.” Investor sentiment has grown more cautious even as returns have improved. In Preqin’s latest survey, 35% of institutional investors now consider private credit assets overvalued—a 16 percentage-point jump from the previous year. Meanwhile, 37% expect performance to weaken over the next 12 months, primarily due to interest rate uncertainty.
While headline fees are rising, what investors actually pay remains unclear. Preqin’s data tracks only the contractual management fee at fund formation, not expenses, fee offsets, transaction costs, or fees tied to net asset value in semi-liquid vehicles. Ludovic Phalippou, a professor of financial economics at Oxford University’s Saïd Business School, noted that “We still do not have a reliable measure of total expense ratios in private credit.” The fee structure is opaque, and in semi-liquid products, it can be even more so because some fees are calculated based on net asset value.
Industry admits fee opacity hurts transparency
Some managers acknowledge this lack of transparency. Resistance to trading private assets more openly “generally means your fee is above where it’s supposed to be, and you don’t want to shine a light on it,” said Apollo Global Management chairman and CEO Marc Rowan. Phalippou added that investors have little leverage to push back. “The uncomfortable truth is that most LPs have very little negotiating leverage,” he said. “For the vast majority of investors, these are effectively take-it-or-leave-it contracts.” The result, he adds, is that fees persist “not because they have been negotiated, but because the market structure allows them to persist.”
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The Los Angeles County Employees Retirement Association (LACERA), valued at $93.9 billion, has adopted a different approach. Instead of focusing solely on headline management fees, it measures “investor profit retention”, the share of gains retained after fees. This strategy weights manager compensation toward performance fees that kick in only after a hard hurdle rate, ensuring most gains stay with investors. Chad Timko, senior investment officer at LACERA, explained that the fund’s approach assumes the real cost battle in private credit is not the upfront fee but how gains are split once they materialize. By demanding a super-majority share of returns above a defined threshold, LACERA aligns its interests with those of its managers while holding them accountable for underperformance.
India’s private credit boom reshapes global market
India’s private credit market grew 35% year over year in 2025, to roughly $12.4 billion. Domestic funds represented over 64% of total deal value, pointing to the increasing depth of local capital. Syed Hasan Jafar, vice dean of the School of Business and head of the Department of Finance at Woxsen University, noted that this trend points to broader diversification of private credit sources beyond traditional Western investors. Meanwhile, fee competition remains a top concern, with PwC’s 2026 global private credit survey identifying ongoing fee pressure among managers as a key issue. Even as headline fees rise, the underlying tension between investor costs and manager returns persists.
