Investors in private equity are increasing their control over terms and conditions, resulting in lower fees, according to research by Preqin.

The data firm found that two-thirds (67%) of clients reported having rejected investments due to unfavourable terms.

However, one-third (33%) of investors said they had seen an overall improvement of private equity terms in their favour in the past 12 months.

Four in five (79%) buyers agreed manager interests were aligned with those of clients, compared with 70% a year ago and 63% in 2014.

“The findings,” Preqin says in its report, “reveal that investors have increased their leverage over fund terms, and their negotiating power has grown significantly as [managers] are eager to secure institutional capital in a competitive fundraising environment.”

The data firm found that buyout funds launched since the start of 2015 and those currently fundraising had an average management fee of 1.78%, while 84% had a performance fee of 20%.

However, Preqin warned managers that “misaligned interests … cannot be solved purely by lowering headline fees”.

Managers also need to demonstrate an ability to generate above-average returns and consider other aspects of contracts, Preqin said, including governance structures, performance fees and rebates.

Preqin’s research also reported a correlation between lower management fees and top-quartile performance.

“Across different fund sizes, top-quartile private capital funds consistently have low average management fees,” Preqin said.

This is particularly noticeable in smaller private capital funds, including real estate, infrastructure, debt and commodities funds.

Top-quartile funds with less than $50m (€47m) in assets charged an average 1.24% annual management fee, while third-quartile funds in the same size range charged 2.08% on average.

Funds with more than $1bn in assets charged broadly the same fees, Preqin found.

“At the same time,” Preqin said, “it appears that top-quartile private capital funds account for a greater proportion of those funds that charge higher carried interest rates, and which apply higher hurdle rates to their funds.”

More than half (56%) of funds with a high hurdle rate – defined as greater than 8% – were in the top or second quartile for performance, Preqin added, “as firms look to further align their interests with those of investors”.

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