Uncharted No More: Fees and Carried Interest in the Independent Sponsor Sector

Our 2025 Independent Sponsor Report highlights how far the independent sponsor model has come in shaping private equity economics. Drawing on insights from more than 170 professionals active in the sector, the Report explores the evolution of fees and carried interest, from the early pushback by capital providers to today’s more balanced dynamics, where closing fees, management fees, and carried interest terms reflect both market benchmarks and the growing institutionalization of the independent sponsor space.

When we began examining independent sponsor fees and carried interest in our second Report seven years ago, there was still much debate around independent sponsor compensation. Back then, capital providers routinely pushed back on independent sponsors’ proposed closing and management fees as well as carried interest. Many respondents described capital providers as having the “upper hand” in negotiations, often dictating terms, especially to less established sponsors.

Through the years, those dynamics have changed. Benchmarking, including through our Reports, has helped show independent sponsors and capital providers alike what the market will bear. Fees have become more accepted and standardized, along with certain aspects of carried interest calculations. However, variations remain, especially around carried interest which continues to be the most negotiated area of independent sponsor compensation.

As a general matter, there is optimism about how independent sponsor compensation has changed. This year, 53% of our more experienced IS survey respondents (those in business three years or more) believe it’s easier to negotiate deal economics with capital providers now versus three to five years ago. This has been the majority view since we first asked this question in our 2023 survey.

Closing Fees

Closing fees are an accepted aspect of IS compensation, as evidenced by the fact that only 3% of IS respondents forgo them (down from 9% in our initial 2017 Report). There has also been increasing consensus around the calculation used for closing fees, with 82% of this year’s respondents using a percentage of transaction value to calculate their closing fee, versus 57% using this calculation in 2017

When closing fees are a percentage of transaction value, that percentage is typically 2% according to 56% of respondents. Closing fees were slightly more likely to be at 3% or more of transaction value this year versus last year.

Closing fees have also increased as a dollar value through the years. While $251,000 to $500,000 has always been the most common fee range through the years of our survey, we have seen considerable growth in the rate of those receiving closing fees of over $500,000, from just 10% of respondents in 2017 to 28% of respondents this year.

“In the past several years, our independent sponsor survey respondents have been targeting higher EBITDA transactions than in earlier years of our Report,” observed Nichol Chiarella, partner and leader of Citrin Cooperman’s Mergers and Acquisitions Tax Practice. “Therefore, it is not surprising that we’ve seen a commensurate increase in closing fee dollar amounts over the past three years. In addition, the higher closing fee amounts are a testament to the greater acceptance of independent sponsor fees overall.”

Annual Management Fees

Annual management fees are most often calculated as a percentage of EBITDA with a floor and a cap, according to 51% of IS respondents. This formulation has been the most popular way to calculate management fees since 2018, when we first asked this question.

When respondents use an EBITDA percentage to calculate their management fee, 69% typically use 5% of EBITDA, which is up from our 2019 survey (the first time we asked this question), when just 49% used 5% EBITDA.

As a dollar amount, management fees are most typically $251,000 to $500,000 for 54% of respondents. This represents a significant increase since our 2018 Report when only 39% received fees in this range. Since our 2023 Report, we have seen little movement in typical management fee dollar amounts across all fee ranges, suggesting increased standardization of this aspect of independent sponsor fees.

One aspect of management fees that has been debated through the years is whether independent sponsors should forego management fees when a portfolio company is struggling. Some contributors believe independent sponsors should continue to take management fees on the theory that if the company is not performing, the sponsors will be more involved.

Other contributors believe sponsors should stop taking management fees when a company is underperforming.

As Tarrus Richardson, founder and CEO of IMB Partners, explained, “There should be the flexibility to suspend management fees when the company is underperforming. When that happens, we move quickly because we work on behalf of all shareholders – the last thing I want is to collect a fee while a business is off the rails, and no one else wants that either,” he added.

Carried Interest

Though carried interest is the area of independent sponsor compensation with the greatest variability, commonalities have emerged in areas such as minimum carried interest and hurdle rates. In other aspects, we have seen an evolution, with terms becoming more favorable to independent sponsors in areas such as maximum carried interest rates and the use of full catch-ups.

Minimum carried interest is firmly within the 10% to 25% range and has been since we first asked this question in 2019. There has been a slight uptick in the percentage of respondents who typically have minimum carried interest of 25% or more, but that remains a very small percentage (this year, just 5%) of our respondents.

Maximum carried interest rates have jumped significantly over the years, with 64% of this year’s respondents obtaining a maximum carried interest rate of 25% or more on a typical deal. In 2019, only 37% of respondents were able to reach this carried interest level. The use of this carried interest range has also increased significantly since last year, when just 45% of respondents were able to obtain 25% or more carried interest.

Multiple on invested capital (MOIC) continues to rise in popularity as the basis for hurdle rates, with 50% of respondents relying on it this year, up from 2019 when just 27% used MOIC. Internal rate of return (IRR) hurdles are now only used by 20% of respondents, but they were our most popular hurdle rate basis in 2019. IRR has even decreased in popularity since last year, when 30% of respondents used IRR as the basis for their hurdle.

The most typical hurdle rate is 8% to 9.9%, according to 63% of respondents. This has been the most typical hurdle rate since we first asked this question in 2019.

Seventy-four percent of respondents use a full catch-up, which represents an increase since 2019 when only 61% of respondents used a full catch-up. There has been a corresponding decrease in those who don’t use catch-ups, from 22% of respondents not using any catch-ups in 2019 versus only 10% not using them this year.