The Squeeze on GP Economics: Fees, GP Commitments, and the Capital to Fund Them

Competition for capital has steadily eroded the economics of running a buyout fund.

The average buyout management fee fell to 1.6% in 2025, down 20% from the industry's traditional 2.0% level, as larger funds routinely concede on headline fees to win commitments. Layered on top of declining fees is a second, less visible drag: growing LP demand for no-fee co-investment. The 2026 StepStone/Bain Private Equity GP Survey reported GPs offering a median of 33 cents of co-investment per dollar of fee-bearing capital, a discount that translates into a roughly 25% reduction in effective revenue.

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The mechanics of that squeeze play out concretely at the fund level.

ORIX GP Solutions offered a case study: a middle-market GP closed its fourth fund at $400 million on traditional 2.0% fee economics, only for anchor LPs backing Fund V to condition their participation on $132 million of no-fee co-investment, in line with the 33-cents-per-dollar norm cited above. The result was a negotiated fee rate of 1.61% and annual fee income of $4.3 million, down from an illustrative $7.2 million under the old terms, even as the firm's fixed costs stayed the same. Management-company financing, structured against contracted fee revenue and unrealized carry, allowed the GP to maintain its investment team and add its first dedicated operating partner through the Fund V raise, the kind of capability LPs increasingly treat as a prerequisite for the next fund, but one the compressed fee base could not have funded on its own.

The pressure shows no sign of easing. More than half of LPs now say they hold more negotiating leverage over GPs than they did twelve months earlier. That shift is evident in a second, equally consequential place: how much of their own capital GPs are being asked to commit.

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LP expectations around GP commitments have risen structurally, not just cyclically. Historically, GP commitments hovered around 1–2% of fund size; today, 2–4% is typical, with the median PE fund manager GP commitment now standing at 2.55% and the 75th percentile reaching 5.23%.

Continuation vehicles, though popular as a liquidity tool, have added a further, largely unanticipated layer: GPs rolling positions into a CV typically forgo the liquidity event a traditional sale would provide, forcing them to fund a growing GP commitment without the distribution that would normally have paid for it. With carried interest from prior vintages still largely unrealized and management fee income under pressure, roughly a third of GPs surveyed say they don't know where the capital for their next commitment is coming from.

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