SEC Eyes Group-Purchasing Fees At P.E. Firms

Jul 3 2014 | 7:26am ET

The Securities and Exchange Commission has expanded its probe into private-equity fees, with a new focus on commissions such firms receive from group-purchasing programs.

Many p.e. firms, including Bain Capital, Blackstone Group, Kohlberg Kravis Roberts and TPG Capital use such programs to win discounts on a variety of goods and services for their portfolio companies; Blackstone’s companies have saved more than $700 million through such efforts over the past seven years, The Wall Street Journal reports, and KKR more than $1.2 billion over the same period, it said.

But some firms receive commissions from the programs which are generally not shared with investors. The SEC, which is already looking into p.e. monitoring and termination fees, is concerned that firm’s aren’t providing enough information about group-purchasing arrangements and relationships to investors.

“Group-purchasing programs may present a conflict of interest,” Igor Rozenblit, who heads the p.e. unit at the SEC’s Office of Compliance Inspections and Examinations, told the Journal. To be in compliance, firms must disclose “all relevant facts, including whether or not the group-purchasing program is a source of revenue for the p.e. manager.”

The firms deny any wrongdoing, and argue that the programs are a great deal for investors, as they improve companies’ bottom lines. KKR said that its relationship with CoreTrust Purchasing Group—which says it may “share a portion” of its commissions with p.e. firms—“is a commercial one that reflects value added by both CoreTrust and Capstone,” KKR’s consulting business, “and has been disclosed both to portfolio companies and fund investors.” Blackstone told the Journal that its investors “enthusiastically” support the money-saving programs.

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