(Reuters) - A senior U.S. Securities and Exchange Commission official on Thursday urged private equity firms to follow Blackstone Group LP’s decision to stop a controversial fee practice in its portfolio companies.
The practice involves the so-called acceleration of monitoring fees, when a private equity firm receives money from its portfolio companies for consulting work it has not performed because it has divested them and no longer runs them.
Many private equity fund investors are asking fund managers to stop the practice, arguing they already pay hefty management and performance fees.
“Blackstone stopping monitoring fee accelerations, they are a bellwether in the industry, the industry follows them,” Igor Rozenblit, co-head of the SEC’s private funds unit, told a Merrill DataSite conference panel on private equity regulation in New York.
“(Industrywide) that’s billions of dollars back to investors that would have gone to fund managers,” he added.
A Blackstone spokesman declined to comment.
The SEC has been stepping up efforts to increase transparency and improve accuracy on fees that private equity funds charge investors, putting together a dedicated group to examine buyout funds and hedge funds, Reuters first reported earlier this year.
“We are often stunned by just how many errors we see. Errors in spreadsheets, errors in management fee calculations. (Private equity) is just a really complex industry, but we understand that and want to work with all of you,” Rozenblit told a room of private equity professionals.
Reporting by Greg Roumeliotis in New York; Editing by Jeffrey Benkoe