(Bloomberg) — Private equity firms, which three years ago became subject to oversight by the Securities and Exchange Commission, have fixed some of their worst deficiencies although their transparency could still improve, an SEC official said.
"The pace of change has been surprising," Igor Rozenblit, the agency's co-head of private-funds compliance inspections and exams, said at a conference today in New York. "I don't think we're there yet, but transparency has improved markedly. Some of the more objectionable issues are just ending."
The SEC last May shocked the industry by saying it found illegal fees or severe compliance shortfalls in more than half of the firms it examined since starting a review of the $3.8 trillion market in 2012. The agency, which ended its initial examinations in October and is working on a report about its private equity findings, will also start looking beyond buyout managers at firms that invest in similar alternatives to stocks and bonds, Rozenblit said.
Recommended For You
The approach will be "thematic and systematic," similar to its private equity review, he said, without specifying the types of firms.
"We're going to come up with a thesis," Rozenblit said. "We're going to test it, and if we find anything perhaps we'll communicate it later on."
More Cases
Rozenblit, speaking at Private Equity International's CFO- COO Forum 2015, didn't rule out that more enforcement cases may be brought against private equity firms.
Some of the largest firms, including Blackstone Group LP, KKR & Co. and TPG Capital, have changed practices by ending the collection of certain fees, disclosing previously hidden charges to clients or refunding some levies to the investors. Blackstone, which manages more than $284 billion, 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, which oversees $65 billion, said the potential charge for similar services may be $10 million a year for the fund it's now raising. The fees at the two firms were detailed in recent marketing materials obtained by Bloomberg News.
The SEC is also looking at accelerated monitoring fees, which are lump-sum payments for future services that aren't provided because private equity firms sold the holdings earlier than an agreed-upon schedule. The firms have reaped more than $1 billion in the fees from companies they've taken public since 2010, according to data compiled by Bloomberg.
Blackstone Shift
Blackstone recently stopped taking the payments, a person with knowledge of the matter said in October. The New York-based firm is marketing a new buyout fund with a $16 billion target.
The SEC's enforcement actions have so far affected small firms. The agency in October fined Clean Energy Capital and founder Scott Brittenham for misallocating funds and changing distribution calculations without adequate disclosure. The firm settled without admitting or denying the regulator's findings.
In September, the SEC fined Lincolnshire Management $2.3 million for sharing expenses between portfolio companies in a way that benefited one fund over another. The New York-based private equity firm didn't admit or deny the allegations.
"Enforcement cases take a really long time," Rozenblit said. "A rocket case would be a year to year-and-a-half. An average case would be two years or, in some cases, longer."
–With assistance from Sabrina Willmer in New York and Alan Katz in Washington.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.