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)

Copyright (c) 2015 Dow Jones & Company, Inc.
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