TPG coughs up $20 million in fees. Huh?

Posted Oct 22nd 2009 12:30PM by Tom Taulli
Filed under: Private Equity

There are chills spreading across the executive suites in Corporate America. As seen with the latest from the U.S. pay czar, there will be 50% pay cuts -- on average -- for 175 executives of firms that received federal money.

Might this spread like a virus?

It's too soon to tell. However, there has been a refuge; that is, private equity. Right?

Well, this sector may be under attack, too. According to a recent piece in the Wall Street Journal [a paid publication], it looks like TPG is going to refund $20 million in fees on its main investment fund (which has about $18.8 billion in assets).

Keep in mind that a typical private equity fund has a 2-20 fee structure. This means there is a 2% fee on assets as well as a 20% take on any profits. So on large funds, it's possible to rake in a good amount of fees -- even if the fund is down significantly.

Understandably, limited partners in these funds are getting concerned about this. Thus, in the case of TPG, it is trying to calm some nerves.

TPG's fee cut is not likely to be isolated. There is certainly lots of pressure to get better alignment on things.

And it's reasonable. After all, private equity firms should get paid for making profits, not sitting on piles of cash.

Tom Taulli is the author of various books, including The Complete M&A Handbook.

Tags: fee refunds, inthenews, pay czar, private equity, TPG