Key Takeaways:
Private-equity managers are charging wealthy investors hundreds of millions in performance fees on unrealized gains before any assets are sold, a practice that highlights structural conflicts in semiliquid funds.
StepStone Group's Spring fund accrued $271.3 million in incentive fees for the fiscal year ended March 31, almost entirely on $1.87 billion of unrealized gains, while realized gains totaled just $3 million. The $6.5 billion fund posted a 43% return for the year, with net unrealized gains dwarfing the $16.7 million in dividends and interest and the $3 million in realized gains.
"These fees reward managers for using optimistic marks on hard-to-value assets," said Jonathan Weil, a finance columnist at the Wall Street Journal who covers accounting and investing.
StepStone said the cash amount actually paid for calendar 2025 was $185 million, equivalent to almost 4% of the fund's net assets as of Dec. 31. The incentive fee is paid annually to the fund's manager, a unit of StepStone Group, whose stock fell 3.35% on the news.
The practice highlights a fundamental difference between private-equity funds sold to wealthy individuals and those available to large institutional investors, which typically charge performance fees only after assets are sold. With Spring capping redemptions at 2.5% of shares outstanding each quarter, investors who want to exit face limited liquidity — yet the manager collects fees upfront on gains that may never materialize.
Similar dynamics played out at other major firms. TPG Private Equity Opportunities, a $1.6 billion fund that started almost two years ago, charged investors $19.3 million in performance fees in 2025 on $169 million of unrealized gains. Realized gains were zero, and dividend and interest income was just $2.6 million. The fund said it paid $8.3 million of the amount owed in cash last January and $8.3 million in stock.
At KKR Private Equity Conglomerate, an $11.8 billion fund, performance fees for 2025 reached $203.2 million, on top of $78.7 million in management fees. Net unrealized gains were about $1.2 billion, while the fund reported $110.6 million in dividend income and net realized losses of $27.9 million. KKR paid its performance fees in stock.
The Semiliquid Trade-Off
The evergreen structure that makes these fees possible also creates liquidity risks. Spring raises capital monthly while offering investors quarterly repurchase offers capped at 2.5% of shares outstanding. This mismatch between short-term liquidity and long-term, illiquid assets with opaque valuations has already surfaced in private credit, where investors this year flooded managers with redemption requests that often exceeded quarterly buyback limits.
StepStone Group's own balance sheet reflects the cost. The parent company's liability tied to its compensation agreement with its private-wealth-management team more than tripled to about $2.3 billion during the fiscal year ended March 31, driven in part by last year's fees at Spring. As a result, StepStone Group's common equity turned negative.
What's at Stake for Wealthy Investors
For individual investors in semiliquid private-equity funds, the trade-off is clear: access to institutional-style strategies in exchange for fees on paper gains and limited exit options. The funds' financial statements, unlike those of institutional vehicles, are publicly disclosed because they are registered with the SEC — offering rare transparency into a corner of the market where fees often outpace cash realizations.
The risk of getting trapped is not the only concern. As the WSJ report noted, "the people managing their assets often prefer to pay themselves first."
This article is for informational purposes only and does not constitute investment advice.
