MONEY

Investors, though, continue to debate the true cost of owning private credit funds.

This article appears in the September 2026 issue of Global Finance Magazine.

For the first time since the Covid-19 pandemic, private credit’s headline management fees are returning to historical norms.

According to data analytics firm Preqin’s latest fund-terms report, direct-lending funds raised in 2025 charged a mean management fee of 1.42% and a median of 1.50%, essentially matching the asset class’s long-term 2005-2025 averages of 1.43% and 1.50%, respectively.

That marks a sharp reversal from the post-pandemic doldrums, when managers cut prices to compete for a shrinking pool of investor capital amid weak fundraising and slow distributions. The median fee on direct lending funds fell to just 1%, and the mean sank to historic lows of 1.25% to 1.32%. 

Now, competition for capital appears to be easing at the top of the market, while headline prices tick higher. However, beneath the headline numbers, what investors are paying is a more complicated matter. 

“The headline management fee tells you very little about what investors actually pay,” said Ludovic Phalippou, a professor of financial economics at Oxford University’s Saïd Business School. “I expect the true all-in cost to be very high.” 

Chad Timko, senior investment officer at the Los Angeles County Employees Retirement Association (LACERA), one of the largest U.S. public pension funds, valued at $93.9 billion, made a similar point from the practitioner’s perspective: “How a manager pays for performance can be just as important as the performance itself.”

Pricing Power at the Top

The reversal in headline fees isn’t happening evenly. Preqin’s data links it directly to performance. For funds raised between 2015 and 2019, top- and bottom-quartile managers charged nearly identical fees, averaging about 1.42%. For 2020-24 vintages, that changed; top-quartile funds held their fees near 1.42%, while fees in the lower three quartiles fell to between 1.24% and 1.29%.

Behind that split lies a market that has become sharply concentrated among a small number of managers. Two-thirds of all private-credit capital raised in 2024 went to the 20 largest funds, up from less than half in 2020, according to Preqin. 

Average fund size has continued to climb for experienced managers, but first-time managers’ fund sizes have remained flat at roughly $120 million for five years. Fee discounts have followed the same pattern; the share of fund agreements offering early-investor or large-commitment discounts fell from 41% for 2016-18 vintages to 33% for the 2022-24 period, and the size of those discounts has also shrunk.

Some investors view the buildup of capital among top managers as a warning sign. Pension money pouring into private credit in recent years has “got out of hand,” loosening underwriting standards across the industry, said Mark Steed, CIO of the $25.8 billion Arizona Public Safety Personnel Retirement System. “There’s going to be a shakeout.”

Investor sentiment has grown more cautious even as realized results tick up. In Preqin’s most recent survey, 35% of institutional investors called private credit assets overvalued, up 16 percentage points year-over-year, and 37% expect performance to soften over the next 12 months, chiefly citing the path of interest rates.

Similarly, PwC’s 2026 global private credit survey identified ongoing fee competition among managers as a top concern heading into this year. 

Capital concentration isn’t unique to developed private credit markets, either, though it takes a different shape elsewhere. 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,” noted Syed Hasan Jafar, vice dean of the School of Business and head of the Department of Finance at Woxsen University.

What Are Investors Really Paying?

Despite the recorded uptick in fees, it remains unclear whether investor expenses are moving along with the trend. 

Preqin’s figures track the headline contractual management fee rate written into a fund’s limited partnership agreement (LPA) at formation: not fund expenses, fee offsets, transaction and monitoring charges, or, in newer semi-liquid vehicles, fees calculated on NAV rather than committed capital.

“We still do not have a reliable measure of total expense ratios in private credit,” said Oxford’s Phalippou. The problem is structural, he said. “Private credit has essentially inherited the same fee model as private equity, so the transparency problems are very similar. In semi-liquid products, the situation can actually be worse because some fees are calculated based on NAV. That creates additional opportunities for gaming.”

Despite the increase in headline fees, alternative investment adviser and fund manager Cliffwater’s 2025 survey of direct lending funds found total blended costs — management fees plus incentive fees and expenses — roughly flat or lower, not higher. Proskauer’s most recent private credit survey shows that commitment and arrangement fees — a separate one-time charge — continue to fall. 

Neither Cliffwater’s nor Proskauer’s findings contradict Preqin’s data; they measure different metrics. Together, they suggest that while the sticker price at the top of the market is rising, what investors pay all-in remains unclear. 

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 is skeptical, in any case, that investors have much power to push back, regardless of which way headline fees move. 

“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.”

LACERA addresses the problem by measuring “investor profit retention,” the share of investment gains it retains after all fees, rather than fixating on the headline management fee rate, Timko said. Because its capital bears the full risk of loss, LACERA expects “to retain a super-majority of the gains generated,” with manager compensation weighted toward a performance fee that pays out only above a hard hurdle rate of cash plus a spread, rather than a flat charge on committed capital. 

It is, in effect, a bet that the real fight over cost in private credit is not about the sticker price but about how gains are split once they materialize.

Thomas Monteiro is a contributing writer based in Spain.