TPG Partners has been fined $12.8 million by the Securities and Exchange Commission for taking accelerated monitoring fees arising from the sale, IPO and exit of portfolio companies.
The firm, which is one of the largest global private fund managers, allegedly failed to disclose the accelerated fees before LPs committed capital, and failed to submit the accelerated fees to the LP committee for approval.
It did disclose that it might receive monitoring fees from portfolio companies held by the funds it advised, and disclosed the amount of fees accelerated after the acceleration, however.
The SEC also alleged the firm engaged in undisclosed conflicts of interest and failed to implement an adequate compliance programme.
“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 at the time they were taken. 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 firm said in a statement.
Fees and expenses are a top priority for the US regulator, and around 80 percent of all enforcement action relates to shortcomings in this area.
“The SEC has attacked PE fees and expenses including portfolio monitoring fees, broken-deal expenses, overhead costs, and consulting fees. To avoid these issues, PE firms may want to re-think their business models and include all fees and expenses in a higher management fee and carried interest,” Todd Cipperman, chief executive of Cipperman Compliance, said.
Fort Worth, Texas-based TPG had around $52 billion in regulatory assets under management as of January 1 2017, according to the SEC filing. It said limited partners are generally charged an annual management fee of between 1 and 2 percent of their capital under management, with carried interest standing at 20 percent.