Management Fees vs. Performance Fees: What Public Pension Data Actually Shows

Total investment management fees across institutional investors averaged 40 basis points in 2024. That number, from Callan's 2025 Investment Management Fee Study covering $784 billion in assets across 180 institutional investors, is accurate and nearly useless on its own (Callan, January 2026). It masks a range from 1.9 bps for passive U.S. large cap equity to 113 bps for hedge fund-of-funds, with private real assets at 88 bps and everything else distributed across that spread depending on strategy, mandate size, and which specific fund you are talking to.

Most investment firms know the 40 bps headline. Very few know what the fund they are targeting has actually paid managers in their category. That is the gap fee study data closes, and it is the gap this post addresses.

How Management Fees and Performance Fees Are Built

Before getting to what the data shows, it helps to be precise about what each fee type is and how it appears in public fund disclosures, because the two components behave very differently.

Management fees are annual charges assessed on committed or invested capital, expressed as a percentage of AUM. They cover fund operations and are collected regardless of performance. During the investment period for private equity funds, the median management fee sits at 1.75%-2.00% on committed capital, stepping down 20-25 basis points after the investment period ends (Callan 2024 Private Equity Fees and Terms Study, August 2024, analyzing 413 PE partnerships from 2018-2024). In public equities, the picture is entirely different: active U.S. large cap equity fees have converged in the 20-26 bps range, while passive U.S. large cap now averages just 1.9 bps (Callan 2025 Cost of Doing Business Study, September 2025). In public pension disclosures, management fees almost always appear as dollar amounts paid during the fiscal year, not as a rate.

Performance fees, called carried interest in private markets and incentive allocation in hedge funds, are paid when returns clear a hurdle rate or high-water mark. The vast majority of private equity funds charge 20% carried interest, and 84% set a preferred return of 8%, most using a compounded calculation (Callan 2024 Private Equity Fees and Terms Study). In public pension disclosures, performance fees often appear as a separate line item, though some funds roll them into a total fee figure. Because performance fee payments are tied to exit timing, they are inherently lumpy: a manager may show zero performance fees in a down year and tens of millions of dollars in an up year. Single-year data is not a useful benchmark for this component.

Carried Interest Is Now a Legislative and Competitive Variable

When negotiating carry with a public pension, the tax treatment of that carry is no longer a static backdrop. It is an active policy debate that is reshaping how managers structure funds, where they domicile them, and how they communicate fee economics to allocators. Investment firms targeting public pensions should understand where this stands.

The U.S. federal picture. Carried interest is currently taxed at 23.8% (long-term capital gains rate) after a three-year holding period, compared to up to 37% for ordinary income. The Carried Interest Fairness Act, active in 2025, would tax carry at ordinary income rates. Additional proposals would extend the holding period from three to five years and partially recharacterize carry as ordinary income. The most likely outcome in the near term is incremental tightening, not elimination of the preferential rate.

The state picture. New York proposed a ~17% surtax on carried interest that would effectively eliminate the preferential treatment at the state level. The proposal stalled because New York conditioned action on coordination with Connecticut, New Jersey, Massachusetts, and Pennsylvania, and no state was willing to move first given the risk of fund manager relocation to Florida and Texas, both of which have zero state income tax. State-level reform remains a collective action problem. No major state has acted unilaterally, and the concentration of financial services in New York City gives that state a strong incentive not to.

The international picture. The divergence across jurisdictions is where the real story is. The UK raised capital gains tax on carry from 28% to 32% in 2025, with a 2026 framework that taxes short-term carry at up to ~47% while preserving an effective rate of ~34% for long-term carry. France taxes carry as ordinary income unless the fund meets strict conditions around GP capital investment and holding periods, with effective rates approaching 45%. Germany offers even less preferential treatment, with carry more likely to be taxed as income at rates up to ~45%.

At the other end of the spectrum, Singapore offers effective tax rates of 0-10% on carry under its incentive schemes for funds domiciled locally with sufficient economic substance. Hong Kong matches that with a 0% rate on qualifying carry. Italy and Spain sit in the middle: Italy offers ~26% capital gains treatment for funds meeting minimum GP investment thresholds, Spain roughly 23-28% for properly structured long-term investments.

The result is a fragmented global system where carry economics vary by as much as 47 percentage points between jurisdictions. For public pension funds that are increasingly investing across geographies, and for investment firms raising capital from international allocators, fund domicile and GP location decisions now carry explicit tax implications that affect the economics of the carry waterfall directly.

What this means for fee negotiations with public funds. Public pension staff and their consultants are aware of the carry tax debate. Some funds, particularly larger ones with internal policy teams, have taken positions on carry reform as a governance matter. When you present your fee structure to a public pension, expect questions about how your carry terms would be affected by proposed federal changes. More practically, if your fund is domiciled or your GP is located outside the U.S., be prepared to explain the economics clearly. The performance fee line in a public pension's fee study looks the same regardless of where the carry is ultimately taxed, but the conversation in the room will be more sophisticated than it was five years ago.

How Fee Data Appears Across Different Public Fund Formats

Public funds publish fee data in several formats, and the format determines how much work is required to make the numbers comparable.

The cleanest version is a tabular fee schedule in a CAFR or investment report, with manager, strategy, AUM, management fee, and performance fee presented in separate columns. Funds that use third-party investment consultants like Callan, NEPC, or Aon often have more standardized fee reporting because the consultant applies a consistent methodology across the portfolio.

The harder version is fee data embedded in board meeting minutes or narrative budget documents. Some funds report alternative investment expenses net of income, making their apparent cost look lower than a peer that reports the same expenses as gross. This is a reporting artifact, not a real cost difference. A Pennsylvania pension commission study of 84 large public funds found reported expense ratios ranging from 0.17% to 1.58% of assets in the same year (Civic Federation, citing Pennsylvania pension commission report, December 2018). Illinois TRS sat at 1.58% partly because a 2016 change caused it to report real estate expenses separately rather than netting them. Their actual costs did not change. Their reported costs more than doubled.

There are also structural limits to what fee studies reveal. You can see fees paid in a fiscal year, manager name, asset class, and approximate mandate size. You cannot see specific fee schedules, breakpoints, MFN provisions, or side letter terms. The fee study shows what a fund paid. It does not show everything that was negotiated.

What the Data Shows: Management Fee Benchmarks by Strategy

The table below draws from Callan's 2025 Investment Management Fee Study and 2024 Private Equity Fees and Terms Study, the most current publicly available institutional benchmarks covering 2024 fee activity. These are category-level figures. Dakota's Fee Studies product shows the fund-level data that sits beneath these averages.

Three patterns stand out.

Compression in public markets has slowed materially. Callan's director of research stated in January 2026 that the pace of fee reduction "may be approaching a practical lower limit for quality institutional products in some asset classes." Fund managers in active equity and fixed income who expected perpetual downward pressure may be closer to a floor than they realize.

Private equity fees have not followed the same trajectory. Callan's 2024 PE study found that "fees today are not that much different than fees seven years ago." Most PE managers do not change their fee schedules from one fund to the next. The strategy composition of the market drives more variation than active manager pricing decisions.

Alternatives are pushing total fund costs up even as per-category fees fall. Public funds averaged 43 bps in total investment management fees in 2024 (Callan 2025 Cost of Doing Business Study), reflecting the cost of shifting more capital into higher-fee alternative strategies. More alternatives allocation means more expensive total portfolios, even when each individual mandate is cheaper than it used to be.

[DAKOTA/EXPERT INPUT NEEDED: Fund-level management fee data by strategy from Dakota's Fee Studies product. The Callan figures above provide category context. Dakota's data shows what specific public funds have actually paid specific managers, which completes this section.]

What the Data Shows: Performance Fee Benchmarks by Strategy

Performance fee data is harder to benchmark precisely because it is tied to realized returns, and public pension disclosures capture what was paid in a single fiscal year rather than what was earned over a fund's life. The structural norms, however, are well established.

Private equity has held at 20% carried interest with an 8% preferred return across the market, consistent across vintage years going back at least seven years per Callan's study. That stability is unlikely to change in the near term. The institutional demand for PE access continues to exceed the number of top-quartile managers willing to move on carry.

That said, the tax treatment of that carry is in motion. The U.S. federal proposal to tax carry at ordinary income rates (up to 37%) versus the current 23.8% capital gains rate would meaningfully change the net economics of a 20% carry for managers. The three-to-five-year holding period extension being discussed would further constrain when carry is realized. For investment firms raising PE capital from U.S. public pensions specifically, this is a conversation that will come up in LP meetings, particularly with larger funds that have internal policy and governance functions.

Venture capital follows a similar 20% carry structure but with significantly less dispersion between investors in the same fund. Stanford GSB research found carry dispersion of only 0.5% between VC investors, compared to 6.8% in private debt and 6.4% in real estate (Stanford GSB, Begenau and Siriwardane, 2022). VC funds use more standardized LP contracts, which limits negotiating variation. Private debt and real estate show wide variation in what different investors pay for the same access.

Hedge funds typically charge 20% of profits above a high-water mark. In May 2024, dozens of major allocators signed a letter calling for the hedge fund industry to implement cash hurdles before charging incentive fees, reflecting frustration with performance fees paid in years where absolute returns were positive but benchmark-relative performance was not (Chief Investment Officer, January 2025). That pressure has not yet produced structural change, but it is an active tension in hedge fund manager-allocator relationships.

Public equities and most core fixed income mandates rarely include performance fees. Proposing an incentive fee in these categories would be read as unfamiliarity with how those mandates are structured. The category convention matters as much as the fee level itself.

[DAKOTA/EXPERT INPUT NEEDED: Fund-level performance fee data by strategy from Dakota's Fee Studies product, with multi-year averages where available. Flag categories where sample sizes are too small to support reliable conclusions.]

What This Means Before Your Next RFP

Know your category before you name a number. The spread between what managers charge at the top and bottom of most categories is wider than most people assume. Going in at the high end without a clear justification for why your strategy warrants it is not a negotiating position. Public fund consultants run their own fee benchmarking. They know the range before you walk in.

Carry reform is a real variable in the conversation. If you are marketing a PE or private credit strategy to U.S. public pensions in 2025 and 2026, expect questions about how your fund economics would change under proposed carry tax changes. Prepare a clear explanation of how your carry waterfall works, what the current tax treatment is, and what the economics look like under the most likely reform scenarios. Funds with international GP structures should also be prepared to explain jurisdiction-specific treatment clearly, since carry tax rates now range from 0% in Singapore and Hong Kong to close to 47% on short-term carry in the UK.

Performance fee structure signals category fluency. Proposing carry in a strategy where it is rare, or omitting it in a strategy where it is standard, signals category inexperience before any substantive conversation begins.

Consistency across your public pension relationships matters more than it used to. Stanford GSB research found that 61% of private market funds use tiered fee structures, and that different investors in the same fund can pay materially different effective rates (Stanford GSB, Begenau and Siriwardane, 2022). Public funds with active fee study programs are aware of this dynamic. If you have charged a comparable fund 50 bps less for the same strategy, the new fund's investment staff may know. Fee study data flows in both directions.

Propose a fee schedule with breakpoints. It signals that you understand how institutional mandates are sized and negotiated. Every PE fund in Callan's 2024 study offset management fees against transaction and monitoring fees, and the vast majority used a 100% offset. If your fee structure does not address this, the absence will be noticed.

Where to Find This Data

CAFRs and fund websites give you raw data on individual funds: time-intensive, inconsistently formatted, and requiring normalization before numbers are comparable across funds.

FOIA requests are effective where direct publication is incomplete, with response timelines of 30-90 days and some states exempting certain fee data from disclosure.

Consultant benchmark studies from Callan, NEPC, and Aon publish category-level fee ranges annually. Useful for understanding where your strategy sits in the market. Not useful for seeing what specific funds have paid specific managers.

Dakota Marketplace Fee Studies aggregates fund-level fee data from public pensions at scale, normalized and filterable by strategy, asset class, fund size, and geography. It is the only source that shows what specific funds have paid specific managers across the full U.S. public pension universe, without requiring you to build and maintain that dataset yourself.

Dakota Marketplace

Dakota Marketplace tracks 1,493 public pension funds and 35,000+ investments, including fee study data filterable by strategy, asset class, fund size, and state.

If you are setting fees for a new fund, preparing for a public plan RFP, or benchmarking what comparable managers have charged funds on your target list, this is the data your process is currently missing.