Blackstone Says SEC Asked About Monitoring Fee Practices

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Blackstone Group LP, the world’s biggest alternative-asset manager, said U.S. regulators have inquired about the firm’s practice of collecting fees from companies it owns.

The Securities and Exchange Commission “informally” asked New York-based Blackstone for information about accelerated monitoring fees it has previously charged portfolio companies, according to a regulatory filing Friday.

The firm said it expanded its disclosure of the practice after an SEC exam from 2011 to 2012, and last year stopped collecting the fees after it sells a company and limited the practice after taking companies public.

“We are in discussions with the SEC regarding a potential resolution of these matters,” Blackstone said in the filing, also citing pre-2011 vendor-related discounts about which the SEC has asked for information.

Christine Anderson, a Blackstone spokeswoman, declined to comment.

Accelerated fees are typically a lump-sum payment representing income Blackstone would otherwise lose by selling a portfolio company ahead of a schedule agreed to at the time of its investment.

The firm, which manages $310 billion in assets, will continue the widespread practice of charging companies monitoring fees while it owns them, a person with knowledge of the details said in October.

‘Flash Point’

Fees charged to companies and clients by private equity firms have come under scrutiny by the SEC as regulators review the industry, an outcome of the 2010 Dodd-Frank law passed after the financial crisis.

“The array of fees private equity firms pay themselves whether or not their investors make a dime has become a flash point,” said Erik Gordon, a professor at University of Michigan’s Ross School of Business. “Investors are pushing for better terms when the firms come back for money for new funds.”

Drew Bowden, the SEC’s former director of compliance inspections and examinations, said last year that accelerated monitoring-fee agreements can be worth more than $100 million. Disclosure of the fees is usually limited or too late, said Bowden, who last month left the agency for the private sector.

Blackstone gathered $17 billion in the past seven months for its latest buyout fund, two people with knowledge of the process said this week. It’s still collecting money toward a maximum of $17.5 billion, which would be the second-biggest private equity fund raised since the financial crisis.

Blackstone’s filing was reported earlier by the Wall Street Journal.

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