SEC asks Carlyle for more information about accelerated monitoring fees

  • SEC made ‘informal request’
  • Carlyle cooperating with SEC request
  • SEC focused on proper disclosure around fees

The SEC has requested additional information from The Carlyle Group on its past use, if any, of accelerated monitoring fees, according to the firm’s 10-K annual report filed Thursday.

“We are cooperating fully with the SEC’s informal request,” the filing said. Randy Whitestone, a spokesman for Carlyle, declined to comment further. Judith Burns, a spokeswoman with SEC, also declined to comment.

GPs collect monitoring fees from portfolio companies for advisory and related services that they provide. With acceleration, monitoring agreements that terminate before the end of their term get accelerated to full payment upon exit of the investment. The management agreements often can run 10 years or more and are at times subject to automatic extensions, said Drew Bowden, former director in the Office of Compliance Inspections and Examinations, in a speech he gave in 2014.

“This sort of arrangement has the potential to generate eight-figure, or in rare cases, even higher fees,” Bowden said.

Carlyle Group said in the filing that it regularly receives information requests from the SEC so the significance of this particular request is not clear. In November, fellow mega-firm Apollo Global Management also said in a regulatory filing that the SEC had requested additional information from the firm about accelerated fees.

It is not clear if Carlyle Group has ever collected accelerated monitoring fees or, if it has, in which funds. Update: The firm’s Form ADV discloses that the firm, under certain circumstances, may use fee acceleration.

Blackstone Group last year agreed to settle an SEC investigation involving accelerated monitoring fees, among other things. It agreed to pay $39 million–$10 million in a civil penalty and $28.8 million in a disgorgement of fees paid back to investors. The SEC accused Blackstone Group of a lack of disclosure around use of accelerated monitoring fees, as well as a lack of disclosure of vendor discounts the firm received. Blackstone Group did not admit any wrongdoing.

The SEC will continue to focus on advisers who don’t provide adequate disclosure around fee practices, Andrew Ceresney, director of the SEC’s Division of Enforcement, said last year in relation to the Blackstone Group settlement.

“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,” Ceresney said.

Action Item: Check out Bowden’s speech from 2014:

Photo courtesy of REUTERS/Shannon Stapleton

Update: This story was updated to include a no comment from the SEC, and additional information from Carlyle’s Form ADV.