Key Takeaways
- • Fordham University's $1 billion endowment faces structural disadvantages in private-equity fee negotiations due to its smaller size relative to larger institutional peers with greater bargaining power.
- • High private-equity fees create a significant cost burden for smaller U.S. endowments, with fee structures potentially consuming 5% to 26% of committed capital over a fund's lifetime, according to academic research cited in industry coverage.
- • Fordham CIO Geeta Kapadia has adopted a strategy of targeting smaller, more flexible fund sponsors to mitigate the fee impact on the university's portfolio, reflecting a pragmatic response to structural market disadvantages.
- • The private-equity industry faces a broader challenge of aging, underwater funds that continue charging fees despite extended hold periods, with $668 billion in funds as of 2023 subject to extended lifespans due to a three-year M&A slowdown.
Summary
Fordham University's Chief Investment Officer Geeta Kapadia highlighted a fundamental challenge facing smaller institutional investors in private markets: the inability to negotiate favorable fee structures compared with larger, better-capitalized endowments and pension funds. Speaking to the Wall Street Journal in May 2024, Kapadia noted that Fordham's $1 billion endowment operates at a structural disadvantage when engaging with established private-equity sponsors who offer standardized fee schedules to smaller investors.
The fee burden on mid-sized institutional investors has become increasingly acute. According to academic research cited in industry publications, total private-equity fees can consume between 5% and 26% of committed capital over the life of an investment, a range that significantly impacts net-of-fees returns. For smaller endowments lacking the negotiating power of Harvard, Yale, or other mega-endowments, this cost structure represents a persistent drag on portfolio performance.
In response to these structural constraints, Kapadia indicated that Fordham has adopted a differentiated investment strategy, actively seeking out smaller, more flexible fund sponsors willing to accommodate mid-market institutional capital. This approach represents a pragmatic acknowledgment that access to mega-cap private-equity funds with superior fee terms is simply unavailable to endowments of Fordham's scale.
The broader private-equity industry faces compounding challenges related to fee sustainability. As of 2023, approximately $668 billion in private-equity capital remains locked in aging funds with extended fund lives, the result of a three-year mergers-and-acquisitions slowdown that has prevented planned exit strategies. These underwater funds continue charging management and performance fees despite inability to deploy capital at target returns, further pressuring net returns for all stakeholders. This dynamic underscores why fee negotiation remains a critical lever for smaller institutional investors seeking to preserve capital efficiency in an increasingly challenging private-markets environment.
The fee burden on mid-sized institutional investors has become increasingly acute. According to academic research cited in industry publications, total private-equity fees can consume between 5% and 26% of committed capital over the life of an investment, a range that significantly impacts net-of-fees returns. For smaller endowments lacking the negotiating power of Harvard, Yale, or other mega-endowments, this cost structure represents a persistent drag on portfolio performance.
In response to these structural constraints, Kapadia indicated that Fordham has adopted a differentiated investment strategy, actively seeking out smaller, more flexible fund sponsors willing to accommodate mid-market institutional capital. This approach represents a pragmatic acknowledgment that access to mega-cap private-equity funds with superior fee terms is simply unavailable to endowments of Fordham's scale.
The broader private-equity industry faces compounding challenges related to fee sustainability. As of 2023, approximately $668 billion in private-equity capital remains locked in aging funds with extended fund lives, the result of a three-year mergers-and-acquisitions slowdown that has prevented planned exit strategies. These underwater funds continue charging management and performance fees despite inability to deploy capital at target returns, further pressuring net returns for all stakeholders. This dynamic underscores why fee negotiation remains a critical lever for smaller institutional investors seeking to preserve capital efficiency in an increasingly challenging private-markets environment.
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