How EMEA-focused private equity funds are shifting costs to partnerships

As private equity has gravitated toward North America in recent years, managers have deployed lower overall management fee rates in EMEA-focused funds to attract investors. As a function of the lower management fee rate, however, EMEA-focused funds have pushed certain costs to the partnership through the back door, including higher organizational expense caps.¹ In contrast, North America-focused funds are balancing out the weight of higher overall management fee rates with lower organizational expense caps.

Preqin Term Intelligence shows that the average management fees for EMEA-focused private equity funds between 2020 and 2023 were 1.76% and 1.68% for inside and outside the investment period, respectively, while for North America-focused funds they were 1.82% and 1.65% (Fig. 1). During the same period, the average organizational expense cap for EMEA-focused funds was $4.5mn, while for North America-focused funds it was $3.8mn (Fig. 2). With EMEA-focused private equity buyouts making a comeback and positive momentum set to continue in the wake of the current geopolitical and economic environment, this may herald a switch in management fee rates and organizational expense caps for EMEA and North America-focused funds.

Lower management fee rates in EMEA-focused private equity funds

Between 2018 and 2023, the entry EV/EBITDA ratio for buyouts in Europe was around 10% lower than in North America.² As private equity buyouts gravitated toward North America during the market peak in 2021, managers deployed lower management fee rates in EMEA-focused funds in a bid to attract investors.

This can be seen in Fig. 1, where management fee rates in EMEA-focused funds across all fund sizes were lower versus their North America counterparts. Preqin Term Intelligence shows that the management fee rates for North America-focused funds increased during 2020–2023, while EMEA-focused fund rates have decreased since 2021. Both EMEA- and North America-focused funds have lower management fee rates outside the investment period compared with inside the investment period.

Fig. 1: EMEA-focused private equity funds have lower average management fee rates overall
Management fee rates average, North America- vs. EMEA-focused private equity funds

_{Source: Preqin, Term Intelligence. Data as of March 2025}

Higher organizational expense caps in EMEA-focused private equity funds

Preqin Term Intelligence also shows that EMEA-focused private equity funds have higher organizational expenses caps overall when compared with North America-focused funds (Fig. 2). The average size of organizational expenses caps for EMEA-focused private equity funds has steadily increased year-on-year during 2021–2023.

Organizational expenses caps for certain EMEA-focused funds reached more than $6mn during this period, while the average organizational expense cap size sat at just over $4mn. Conversely, the size of the organizational expense caps in North America-focused private equity funds decreased over the same period, excluding 2022.

Fig. 2: EMEA-focused private equity funds have higher average organizational expenses caps
Average organizational expenses caps by fund size and by % of total fund size, North America- vs. EMEA-focused funds

_{*Data for 2023 not available.
Source: Preqin, Term Intelligence. Data as of March 2025}

A shifting landscape

In recent years, lower management fee rates and higher organizational expenses within EMEA-focused private equity funds could reflect greater fee pressure from a burgeoning North American market. Competition for capital has resulted in quiet concessions and a shift of certain costs to the partnership through the back door, including higher organizational expense caps.

Europe-focused private equity fundraising, however, made a strong comeback in 2023 and this positive momentum looks set to continue. The largest buyout fund closed in 2024 was a Europe-focused fund, as of August 2024. In North America, momentum has slowed. As the geopolitical and economic landscape continues to shift, this may herald a switch in management fee rates and organizational expense caps as North America-focused private equity funds strive to attract investors. This may include lower management fee rates, but with certain costs pushed to the partnership through the back door.

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_{1. Organizational expenses are a type of set-up fee allocated to or paid by the fund for services toward the establishment of a fund, including (but not limited to) any legal or audit costs.}

_{2. Preqin Transaction Intelligence. Data as of August 2024.}

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