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Why have larger private equity firms (in terms of assets under management) come under scrutiny regarding...

Why have larger private equity firms (in terms of assets under management) come under scrutiny regarding their management fee structure?

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Answer #1

Traditionally the private equity firms have catered to high net individuals who had a large amount of wealth. Charging management fee to them was non issue since it was a small part 1-2% of total investment. If they sustained loss, the individuals would lose their wealth to a small extent only, hence they had minimal or no regulatory oversight. However in recent times, the PE firms have also seen investment coming fronm pension funds and endowment, which are indirectly related to small investors, therefore it needs to be looked into for regulatory purpose. The fee has to be regulated because traditionally alpha has been only 1-2% and management fee would eat away all that.

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