Two of the largest private equity firms are disclosing fees that had largely been hidden as U.S. regulators demand increased transparency from the industry.
Blackstone Group said it could collect as much as $20 million annually from investors and companies in its next buyout fund, for services such as health-care consulting and bulk purchasing. TPG Capital put the potential charge for similar services at as much as $10 million a year for its new fund, which is currently seeking to raise as much as $10 billion.
The fees, detailed in recent marketing materials obtained by Bloomberg News, are on top of other monitoring and transaction fees and haven't been disclosed in such detail in documents governing earlier funds. The Securities and Exchange Commission has criticized the industry for passing on charges to clients without their knowledge and is trying to persuade the $3.5 trillion private equity industry to improve disclosure.
“We've entered a new day,” said David Fann, president and CEO of TorreyCove Capital Partners, which advises pension funds on private equity investments. “Most investors will request more robust disclosure surrounding fees being paid by portfolio companies to private equity funds.”
The fees questioned by regulators are for services provided by consultants, known as operating partners, who are paid by private equity firms for their expertise on various aspects of running a business including recruitment, procurement of goods and pricing strategy.
In a May speech, Andrew Bowden, director of the SEC's inspections office, said he was concerned about improper fees and the allocation of expenses to investors that should be paid by the firms. He said more than half of the private equity firms examined to that point were either breaking the law or had “material weaknesses” in controls.
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.
Peter Rose, a spokesman for Blackstone, and Owen Blicksilver, a spokesman for TPG, declined to comment.