Frans Verhaar: Don't let the managers decide what is 'in line with the market'
This column was originally written in Dutch. This is an English translation.
By Frans Verhaar, Managing Director, Head of Continental Europe at bfinance
It is early July. In some parts of the Netherlands, people are already haggling over a carpet or a leather bag at a market abroad, whilst stallholders call out to them, ‘Only look, no buy’. There, everyone understands that the asking price isn’t necessarily the actual price.
When it comes to their portfolios, those same investors often do the opposite. They accept the fee stated on the price tag without checking what comparable investors are actually paying. That contrast is the problem. In private markets, it is not the price list that determines who pays what, but who is prepared to negotiate.
The average management fee for European Direct Lending stood at around 100 basis points in 2022. In 2026, it remains at that level. At the same time, 69 per cent of the 84 institutional investors in a recent bfinance survey say that fees for comparable direct lending strategies have fallen significantly or to some extent over the past three years. Both figures can be correct. Anyone looking solely at the asking price sees stagnation. But anyone looking at the actual agreements sees something different.
In public markets, pricing is more transparent. Fees are fixed, more visible and move in a recognisable way in line with supply and demand. For example, the median fee for European high-yield credit fell from 34 to 30 basis points. For emerging markets, it fell from 69 to 60 basis points. Everyone can see that. As a result, the whole market benefits.
In private markets, things work differently. Fees there are confidential agreements between the GP and the LP. The official fee often barely changes, even when the actual price does fall. The median fee for European private equity buyouts in 2026 is virtually the same as that in 2024. Yet 39 per cent of the LPs surveyed report lower fees on comparable strategies. For infrastructure, the figure is 44 per cent. Managers prefer to keep their official rates intact. The discount is hidden away in the terms and conditions.
Our own search data shows how this works. Discounts at first close are more widely available than they were a few years ago. The size of these discounts has also increased: from 10 to 20 basis points to, more commonly, 20 to 65 basis points. Individual discount agreements via side letters are becoming more common. Feeder funds and separate accounts are used to offer certain investors a lower fee, without triggering the main fund’s MFN clause. Such a clause is intended to prevent other investors from receiving better terms. Fee holidays – temporary waivers of management fees – are also becoming more common. This applies particularly to impact strategies that are struggling to raise capital. None of these instruments are reflected in the fee a manager quotes in their pitch deck.
The counter-argument is obvious: does it matter how the discount is packaged, as long as the investor receives it? For an individual LP with good market information, perhaps not. For the market as a whole, however, it does. MFN clauses and benchmarking are only valuable if a reliable reference price exists. As soon as that reference becomes fictitious, only the investor who actively negotiates pays the real price. The rest pay the asking price.
This is therefore about more than just costs. In our survey, 16 per cent of respondents cited stronger collaboration between LPs as a key driver of better terms. Only 3 per cent cited better support from advisers. Investors operating alone often lack the benchmark needed to assess whether their terms are genuinely in line with the market. Managers have little incentive to increase transparency. A high official fee protects the margin and, with it, the manager’s valuation, even if the actual price is under pressure.
As an investor, you should therefore not limit the discussion on fees to the product prospectus. Ask about first-close terms, side letters, feeder structures, MFN clauses and fee holidays. Don’t just compare the published fee with last year’s. Compare what you’re actually paying with what comparable investors are managing to negotiate today. Without that comparison, ‘in line with market conditions’ remains a term defined by the manager. Not by you.
And anyone who negotiates without a benchmark price can already hear the market trader shouting: ‘For you, special price.’ Have a lovely holiday.