Blackstone Settles With SEC Over Certain Fee Practices
October 07 2015 - 02:00PM
Dow Jones News
Blackstone Group LP has agreed to pay about $39 million to
settle charges with the Securities and Exchange Commission over
some of the buyout fund manager's fee practices.
The SEC said the New York firm failed to fully inform investors
about benefits that the advisers obtained from accelerated
monitoring fees and discounts on legal fees. Nearly $29 million of
the settlement will be distributed to affected fund investors, the
SEC said.
"Full transparency of fees and conflicts of interest is critical
in the private equity industry and we will continue taking action
against advisers that do not adequately disclose their fees and
expenses," said SEC enforcement official Andrew Ceresney.
The investigation also found fund investors weren't informed
about a separate fee arrangement that provided Blackstone with a
greater discount on services by an outside law firm than the
discount the law firm provided to the funds. Blackstone settled the
charges without admitting or denying the findings.
"This SEC matter arose from the absence of express disclosure in
marketing documents, 10 or more years ago, about the possible
acceleration of monitoring fees," Blackstone said, calling the
practice common in the industry. Blackstone voluntarily made
changes to the applicable policies before the inquiry began,
according to a spokesperson.
Blackstone last year curbed its collection of
monitoring-termination fees, which are charged by many
private-equity firms but have become controversial. Behind those
fees are contracts that Blackstone and other large private-equity
firms often enter into with companies they buy to get paid regular
consulting, or "monitoring," fees for a set number of years, often
a decade or longer.
If a company is sold or taken public before then, the contract
often dictates that the portfolio company "accelerate" the
remaining fees, by paying a lump sum for years of future consulting
work the private-equity firm won't have performed. The payments to
Blackstone effectively reduced the value of the portfolio companies
before sale, the SEC charged.
The SEC has criticized these as a type of poorly disclosed
"hidden" fee whose cost often is borne by public pension funds and
other investors in private-equity funds.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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(END) Dow Jones Newswires
October 07, 2015 13:45 ET (17:45 GMT)
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