Emboldened by their success in bringing down boardroom pay in Europe and the United States, pension funds and other institutional investors are now attacking the fees charged by the once-booming private equity industry.
Private equity firms, which aim to buy and sell companies for vast profits, rode the crest of a cheap credit wave in the middle of the last decade, charging fees that make lavish banker bonuses pale by comparison.
But the biggest buyout funds raised in 2006 have so far yielded just under three percent each a year, data shows, well below returns of at least 20 percent which the dealmakers had persuaded investors they were able to deliver.
"A lot of investors are upset about the historic returns from their funds and attacking fees is one of the ways they are gaining retribution," said one private equity executive at a leading firm, who asked not to be named.
Some big investors led the revolts over management pay at shareholder meetings this year at a wide range of companies, including Citi, UBS, Barclays, Air France-KLM, advertising group WPP and British insurer Aviva .
Meanwhile private equity pay and the low taxation rates on the partners' bonuses have come under the political spotlight as a result of Bain Capital co-founder Mitt Romney's bid to become the next president of the United States.
And institutional investors are piling on the pressure, with high fees now a reason for not investing with a private equity firm, said 87 percent of investors surveyed by publishing and data group PEI International.
Investors have already begun chipping away at the once standard 2 percent annual management fee which they paid on the capital they give to private equity firms to invest over the duration of a 10-year fund, regardless of performance.
"To us the shoe really starts to hurt at 1.5 percent and we are looking to pay less than that," said Katja Solvaara, a portfolio manager at Finnish pension advisory group Ilmarinen.
The biggest investors, with hundreds of millions or even billions to spend, often get a discount on the two percent fee, and the average annual fee is in reality already closer to 1.5 percent, private equity investors and the firms themselves say.
That is also the maximum level that 69 percent of investors think private equity managers should be charging for their management fee, according to PEI International research.
Private equity dealmakers are paid far better than their deal-making peers at investment banks, because of the "2 and 20" fee structure that the industry shares with hedge funds, and that guarantees income regardless of performance.
A hypothetical five billion-euro ($6.15 billion) fund with 20 partners who double investors' money will have about one billion euros to share - or $50 million each - because of a 20 percent cut of the profits.
Should they miss the target, a 1.5 percent management fee means the dealmakers still get 75 million euros a year for costs and salaries.
Time to Talk
In comparison, a senior banker can expect to earn a fixed salary of 350,000 pounds ($546,000), which the best can supercharge through bonuses. For example some 238 senior Barclays staff earned about 1.5 million pounds each on average in 2011.
Having burned through the billions raised before the credit crisis many private equity firms that raise new funds every four or five years are back in the market asking for more money and finding more than ever that investors want to discuss fees.
"Since the financial crisis, it's one of those rare windows that come along. There's an opportunity for the pension funds, insurers and others that provide wholesale capital into private equity to sit down and look at these mechanisms," said Alan Mackay, chief executive of private equity fund manager Hermes GPE.
There are also some signs that private equity houses are yielding to such ideas.
James Coulter, the co-founder of U.S. private equity group TPG, surprised many when he said that more than half the group's investors thought the biggest of them should get a discount of 20 percent on the management fee, which could take a 1.5 percent charge down to 1.2 percent.
And Bain Capital - with which Romney now no longer has any involvement - is offering a range of fee options, including a higher performance fee of up to 30 percent in return for lower management fees.
"That would be preferable because it really shows that they believe that they can produce the top quartile returns and it's not a management fee game," said Klaus Ruhne, partner at Danish investor ATP Private Equity Partners.
Investors have already won a victory on the range of additional fees that sprung up unchallenged in the boom years of the last decade, when deals for food groups to drugs makers ran into the tens of billions of dollars.
They won concessions on deal fees charged to companies for being bought, on exit fees charged to list or sell companies and on monitoring fees for private equity executives to sit as directors on boards.
Those now flow back to investors, otherwise known as limited partners (LPs), rather than lining the dealmaker's pockets.
"It is quite extraordinary that there has been so little dispersion between types of fees and fee structures. That can only go one way — there will be different models over time," said Ilmarinen's Solvaara.
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