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Regulation

TPG settles with SEC over accelerated monitoring fees

TPG reached a settlement with the Securities and Exchange Commission over charges that it accelerated monitoring payments without proper disclosure to limited partners, according to a settlement order published on the SEC website Thursday.

The settlement calls for the private equity manager to pay $13 million, including a $3 million penalty and $9.8 million in disgorgement and interest to limited partners in three TPG funds at the time the accelerated monitoring fees were collected between 2013 and 2015. The settlement relates to four portfolio companies in TPG Partners V, TPG Partners VI, and TPG Biotech Partners III.

TPG neither admitted nor denied the charges. TPG spokesman said in a statement that the matter "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 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 SEC order said the inadequate disclosures of the monitoring fees were a breach of fiduciary duty by TPG from at least April 2013 through April 2015. When TPG had a private sale or an initial public offering of a portfolio company, it terminated some portfolio company monitoring agreements and accelerated the payment of future monitoring fees. TPG disclosed the possibility of monitoring fees and the amount of the accelerated fees, but failed to disclose to the funds and their limited partners before they committed capital that it may accelerate future monitoring fees upon termination of the monitoring agreements.

Receiving those monitoring fees from four portfolio companies was a conflict of interest for TPG because consenting to the practice on behalf of the funds it advised was a breach its fiduciary duty, the SEC said. TPG disclosed its ability to collect monitoring fees to the funds and to their limited partners before capital was committed, but did not disclose receipt of accelerated monitoring fees until after the commitments, and the limited partner committees did not object. "Because of its conflict of interest as the recipient of the accelerated monitoring fees, TPG could not effectively consent to the practice on behalf of the funds," the SEC order said.

The case involves four instances involving the accelerated monitoring fee issue. In one instance, TPG terminated the monitoring agreement and accelerated monitoring fee payments even though the relevant TPG fund was exiting the portfolio company and TPG would no longer be providing monitoring services. The other three instances involved TPG terminating a monitoring agreement upon partial sale or IPO while maintaining some ownership stake in the companies and continuing to provide advisory services while the funds exited. The SEC said the exact timing is unknown because the TPG funds still have an interest.

TPG's private equity platform had $52 billion in regulatory assets under management as of Jan. 1, 2017, the order said.