2025 Private Credit Fund Expenses
Each year Cliffwater conducts a survey of the major fund sponsors in private credit. Their 2025 survey covered 68 firms managing over $1.3 trillion in direct lending assets. The following is a summary of their key findings. Note that effective management fees are determined in the following manner: When fees are based on gross assets (many private funds use leverage) they are converted to a percentage of net assets.
Total Fees and Expenses:
· Effective management fees averaged 3.81%, carried interest fees averaged 1.58%, and administrative expenses averaged 0.45%, for a total cost of 3.81%, lower than 2023’s 4.12% and 3.94% in 2022.
· Total fees as a percentage of NAV varied widely from a low of 2.91% (10th percentile)
to a high of 5.01% (90th percentile) with the variances explained by differences in management fee rates, whether management fees are charged on net or gross assets, and the degree of leverage.
· There was little to no evidence of fee compression.
Based on these findings on expenses Cliffwater estimated the return the average investor in private credit could expect to earn in 2025 based on current yields and historical credit losses. Net of
all fees, carried interest, expenses and credit losses, the average private debt fund investor
can expect an 8.44% net fund return, down from 9.75% in 2024 and 9.68% in 2023—while expenses are now slightly lower, the benchmark SOFR is lower than in 2023 and 2024.
Management Fees:
· 60% of firms charged their management fee rates on gross asset value (GAV) and 40% charged management fee rates on net asset value (NAV).
· Management fee rates in 2025 average 1.02% when charged on GAV and 1.23% when charged on NAV.
· Tenth and 90th percentile management fee rates were 0.75% and 1.00% when charged on GAV and NAV, respectively.
· Firms charging management fees on GAV had an effective, or NAV-equivalent, management
fee equal to 2.14%, accounting for an average leverage level of 1.11x NAV, well above the
1.23% average fee for firms charging management fees on NAV.
An interesting finding was that differences in management fee levels had no statistically significant relationship to borrower EBITDA, sponsor-backing, leverage level, borrower seniority (factors that impact credit quality), or lender AUM for lenders charging management fees on NAV. However, there was a statistically significant (negative) relationship between management fee rates and leverage for lenders charging fees on GAV, but no significant finding for the four other factors.
Carried Interest and Preferred Return
Carried interest and preferred return averaged 12.1% and 6.2%, respectively, for lenders charging management fee rates on GAV and 14.5% and 6.5%, respectively, for lenders charging management fee rates on NAV.
Administrative Expenses:
Administrative expenses averaged 0.45% of NAV (down from 0.48% in 2024)—estimated using a sub-sample of 26 funds that have an operating history of greater than two years and net assets greater than $100 million. The operating history criteria was designed to exclude one-time expenses realized early in a fund’s life.
Portfolio Characteristics:
Average portfolio statistics for the 68-lender study group include 1.11x leverage, 90% first lien loan, 88% sponsor-backed, and $100 million average EBITDA.
Unlevered Direct Lending:
New to this year’s survey was a separate study of unlevered direct lending fund fees from 26 lenders. For these unlevered funds, management fees averaged 1.04% (1.00% median) and carried interest averages 11.2% (10% median) with an average 5.12% (5.00% median) preferred return.
Cliffwater’s own flagship middle market private credit vehicle, the Cliffwater Corporate Lending Fund (CCLFX), with $26.4B of AUM (as of February 28, 2025), has an effective management fee (based on NAV) estimated at 1.00%, no carried interest expense, acquired fund fees and expenses, estimated at 0.31%, and other expenses, estimated at 0.23%, for a total expense (excluding interest on borrowed funds) of 1.58%—2.23% below that of the average lender, and 1.33% below the fee of the 10th percentile of lowest fees. That is one of the main reasons my allocation to private credit is with Cliffwater.