“Operating partners, however, are not usually treated as employees or affiliates of the manager, and the fees they receive rarely offset the management fees, even though in many cases the operating partners walk, talk, act and look like employees or affiliates,” Bowden said.
The SEC has backed Bowden’s tough talk with enforcement actions. In October, the agency fined Clean Energy Capital and its founder Scott Brittenham for misallocating funds and changing distribution calculations without adequate disclosure. Clean Energy didn’t admit or deny the SEC’s findings in the settlement.
‘Behind Us’
“We’re happy to get this behind us,” said Aegis Frumento, a partner at Stern Tannenbaum & Bell LLP in New York, who represents Brittenham and the firm.
In September, the SEC fined Lincolnshire Management $2.3 million for sharing expenses between portfolio companies in a way that benefited one fund over another. Lincolnshire, a New York-based private-equity firm, didn’t admit or deny the SEC’s allegations.
Robert Pommer III, a lawyer for Lincolnshire with Kirkland & Ellis LLP in Washington, didn’t reply to a voice-mail or e- mail for comment.
Many buyout firms, including KKR & Co, TPG and Blackstone, use consultants to help improve companies they own. TPG uses an in-house operations group of 47 professionals that offer advice. Blackstone’s portfolio operations group works with chief executive officers of companies the firm owns.
Prior Funds
In its recent marketing document, Blackstone disclosed some fees that weren’t listed under the prior fund’s limited partnership agreement, including those related to health-care consulting and group purchasing. These fees will also be subject to the $20 million cap, according to the document.
TPG has also increased transparency on fees it charges investors for services including information technology, public and government relations work, property management and customer service, according to the marketing document for its latest fund.