“We do not anticipate that that would be an issue for us,” Adena Friedman, Carlyle’s chief financial officer, told investors and analysts on a conference call last week. “We have actually had a recent visit from the SEC, just on a normal five- year basis, and we feel confident that that we have done things the right way.”

Blackstone President Tony James said on a call last month that the New York-based firm’s legal and compliance staff has grown as the company adapts to the heightened regulatory oversight.

“Legal and compliance is our fastest growing part of the firm by far,” James said. “We’ve been dealing with this for a long, long time, it’s just there’s more and more and more of it, in more and more jurisdictions.”

‘Material Weaknesses’

The most common issues SEC examiners have identified in the inspections are improper fees and the allocation of expenses to investors that should be paid by the firm, Bowden said. More than half of the firms inspected had “violations of law or material weaknesses” in one of those areas, he said.

SEC examiners have repeatedly found problems with how firms pay operating executives, who help find growth opportunities and potential efficiencies in companies, Bowden said. Private-equity firms often tout the role of those executives as a service and then pay them with investor funds or money from portfolio companies rather than the buyout firm, he said.

“This effectively creates an additional ‘back door’ fee that many investors do not expect,” said Bowden. “The adviser is able to generate a significant marketing benefit by presenting high-profile and capable operators as part of its team, but it is the investors who are unknowingly footing the bill.”

Investor Confidence

Bowden said he hopes regulation will help improve investor confidence in the private-equity industry. The oversight is necessary, he said, because those underlying investors include public pensioners and other U.S. workers who are often unable to detect wrongdoing by investment managers overseeing their money.

The SEC has separately questioned whether private-equity firms that charge transaction fees have violated requirements to register as broker-dealers. Those deal fees, which date to the 1980s, give fund managers a cash windfall when a deal closes, regardless of how well or poorly the investment performs over time. The SEC is now weighing an exemption for private-equity advisers that would allow them to avoid registration as a broker-dealer.