Side Letter: SEC’s misleading fees claim; Blue Owl’s IPO; DaGrosa’s $2.5bn Axxes plan

The SEC has cracked down on a VC firm it claims hadn't adequately notified LPs about its unusual fee policy. Plus: liquidity for Blue Owl LPs and a US investor previously linked to a Premier League football club is expanding access to private markets. Here's today's brief, for our valued subscribers only.

Just happened

Time management
Private equity firms have long argued – albeit with varying degrees of success – that a 2 percent annual management fee is necessary to keep the lights on and their staff adequately compensated. Few, however, would attempt to justify charging their LPs for all 10 years in one fell swoop. This is a claim levelled by the US Securities and Exchange Commission at one venture capital firm.

Alumni Ventures and its chief executive Michael Collins have agreed a settlement after the regulator said that the firm did not make it clear to LPs that it was taking the whole management fee up front, rather than collecting it over the life of the fund, affiliate title Buyouts reports (registration required). Though the practice itself is unusual, the SEC’s issue was that the accelerated timeline had not been clearly spelled out in marketing materials.

“If an investor contributed $100,000 to a fund managed by AV, AV would immediately assess 20 percent, or $20,000, as its management fee for the expected life of the fund,” the SEC’s complaint said. “AV typically drew and spent most or all of this $20,000 to pay expenses during the first year of the fund’s operations.”

AV did not admit or deny responsibility. It will repay $4.7 million to LPs and pay a $700,000 penalty. Collins himself will repay $100,000.

“Venture capital fund advisers, like all advisers to funds, must accurately describe their fees and abide by the funds’ agreements,” said Adam Aderton, co-chief of the SEC Enforcement Division’s Asset Management Unit. The case is an example of the SEC cracking down on misleading terms in investor communications. To that end, it has recently proposed sweeping new rules to enhance transparency around fees and expenses.

Listed GP stakes, coming to a bourse near you
If mimicry is the highest form of flattery, Blue Owl Capital‘s reported plans to IPO assets from its portfolio does just that. The GP stakes manager, which itself listed via a SPAC deal between Dyal Capital Partners and Owl Rock Capital last year, will follow in the footsteps of Goldman Sachs’ Petershill unit to list assets worth more than $10 billion in London, according to Bloomberg (subscription required). Petershill listed a $5 billion bunch of 19 stakes in London last year. It’s unclear which stakes in private equity managers would be included in Blue Owl’s listing, though Dragoneer Investment Group, Starwood Capital and HIG Capital are reported to be included. This isn’t the first time Dyal has sought to provide liquidity to investors: in 2020 it securitised a portfolio of stakes held in its 2015-vintage Fund III, returning $1 billion to LPs. (NB: Petershill was the first to run such a process with a $350 million securitisation the prior year).

Seeking Axxes to private markets
Joseph DaGrosa, a US investor previously linked to a potential bid for a Premier League football club, is launching a private markets platform for accredited investors. Axxes Capital will seek up to $2.5 billion via financial advisers to indirectly invest across PE, VC, real estate, secondaries and private debt, PitchBook reports. It will deploy this capital via business development companies, real estate investment trusts and separately managed accounts. DaGrosa is also the founder of Kapital Football Group, an investment business that in 2020 had planned to acquire multiple football clubs in Europe and the Americas with backing from Ares ManagementPrivate Equity International reported at the time.

Essentials

Taking it (really) slow
Given the amount of legal admin, corralling of investors and PR consultation associated with a wrapping up a fundraise, it’s not unheard of for GPs to hold off announcing their final close for the odd month or two. At seven months, however, first-time manager FitzWalter Capital has left it longer than most. The London-headquartered firm, founded in 2020 by the former head of Macquarie Corporate and Asset Finance’s principal finance division, Ben Brazil, closed its debut fund on its $920 million hard-cap back in August, according to statement last week.

Fund I, which launched in December 2020 with a $500 million target, focuses on special situations and control investments across North America, Europe and developed Asia. Half of the fund has been deployed thus far across four deals in business services, renewable energy and aircraft leasing, Brazil tells Side Letter, noting that the firm’s rather delayed announcement is largely because “investing has been its first order of business”.


Today’s letter was prepared by Alex Lynn with Adam LeRod James and Carmela Mendoza.