Dec 22, 2017

SEC fines TPG Capital for not disclosing some management fees

The SEC on Thursday fined private equity giant TPG Capital for not explicitly disclosing its use of accelerated management fees, related to funds raised nearly a decade ago. The wrist-slap penalty is $13 million, which is below what some rival firms have been forced to pony up.

Accelerated monitoring fees are when a private equity fund signs a long-term "monitoring" agreement with a portfolio company (e..g, 10 years), but is allowed to receive all 10 years of payment even if it sells the company before the term expires. Many firms have been found to have not adequately disclosed (let alone shared) those fees with their limited partners.

  • Such fees have largely disappeared from private equity fund docs, in part due to greater SEC scrutiny. But it's worth noting that The Choice Act, a partial Dodd-Frank rollback that Gary Cohn told Axios is on the 2018 agenda, would remove a requirement that most buyout firms submit the very investor communications that the SEC has used to spot such improprieties.
  • TPG statement: "TPG is firmly committed to upholding the highest governance and transparency standards. The SEC matter at hand relates to the absence of express disclosure in marketing documents, eight or more years ago, about the possible acceleration of monitoring fees, a then-common industry practice. As the SEC order acknowledges, TPG disclosed its receipt of these fees. As we move forward, in conjunction with this resolution, we remain dedicated to continually enhancing our practices on behalf of our fund investors and portfolio companies."
  • The SEC yesterday also announced that yet another senior regulator — Gerald Hodgkins, an associate director of enforcement with more than 20 years of experience — is leaving at year-end to enter private practice.
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