On August 15, 2025, the SEC charged TZP Management Associates, LLC (“TZP”) with breaches of its fiduciary duty related to TZP’s management fee calculations for private equity funds it advised.
The SEC found that TZP willfully violated Section 206(2) of the Advisers Act, which prohibits an investment adviser from engaging in any transaction, practice or course of business that operates as a fraud or deceit upon a client or prospective client for (1) failing to adequately disclose its practices regarding the receipt of interest on deferred transaction fees and the resulting conflicts of interest and (2) improperly duplicated transaction fee reductions when calculating certain fee offsets.
Deferred Fee Interest
The Limited Partnership Agreements (LPA) for the TZP-advised funds permitted TZP to receive “transaction fees” from portfolio companies. The LPAs also required TZP to offset 100% of the transaction fees received by TZP. During the relevant period, TZP deferred payment of transaction fees due from portfolio companies at its discretion or due to loan covenants, charging interest on those deferred fees (which was also permissible under the management service agreements negotiated directly with the portfolio companies). However, TZP did not offset the deferred interest against the management fees charged during the deferral period, resulting in higher management fees paid to TZP. Once the deferred transaction fees and interest were received by TZP, TZP failed to offset the interest against the management fees.
Ultimately, the SEC found that TZP failed to adequately disclose the management fee offset practices and that the offset practices used were inconsistent with the LPAs.
Allocation of Transaction Fees
The SEC further alleged that TZP improperly allocated the transaction fees received among multiple funds that invested in the portfolio company. The TZP funds’ LPAs stated that each fund’s fee offset would be calculated based on all transaction fees received from a portfolio company. Instead, for at least one portfolio company, TZP first allocated a portion of the transaction fee received based on each fund’s pro rata share of the total amount of capital invested. TZP then reduced each fund’s allocation a second time based on each fund’s fully diluted equity ownership of the portfolio company, effectively double-counting and lowering each fund’s fee offset.
The SEC found that TZP did not disclose this allocation practice or the conflicts of interest it created to the relevant funds or their respective LPs.
As a result of, TZP was ordered to pay $683,877 in disgorgement, interest, and civil monetary penalties, cease and desist from further violations of Section 206(2), and censured.
Lessons for Private Equity
This case reinforces the need for private fund sponsors to prioritize transparency, adherence to LPAs, and full disclosure on all aspects of their fee arrangements, demonstrating that even lower-dollar, negligence-based breaches remain squarely within the SEC’s enforcement lens.
The action against TZP signals the SEC’s sharpened attention to management fees and expense arrangements among private equity sponsors, highlighting the SEC’s longstanding emphasis on rigorous fee calculation and robust disclosure practices. The order reflects several emerging enforcement trends that private fund advisers should note.
Fee and Expense Calculation Remains a Top Risk
As underscored in the SEC’s Fiscal Year 2025 Examination Priorities, the calculation and allocation of private fund fees and expenses—including management fee offsets and exclusion of specific revenue such as interest—are perennial areas of scrutiny. Regulatory exam teams continue to probe for hidden compensation and conflicts of interest related to fee arrangements, with keen interest in how complex calculations translate to LP-level charges and disclosures. This case against TZP demonstrates a nuanced review: although the fee offset mechanisms were contractually authorized and the transaction fee deferral was discretionary, the SEC still found a breach of fiduciary duty for failure to offset interest earned and for double-counting reductions in multi-fund allocations.
Targeted Enforcement Under Section 206(2)
Unlike prior private fund cases, the TZP action was brought only under Section 206(2)—highlighting a laser focus on conduct deemed negligent or deceptive, without a broader sweep into compliance program deficiencies. This narrower enforcement stance could suggest an evolution toward more targeted actions, where the facts clearly support a finding of client harm, rather than layering on broader regulatory infractions.
Practical Implications for Private Equity Advisers
Sponsors should proactively align their fee and offset practices with governing LPAs to ensure every dollar received by the adviser is accurately accounted for in fund-level offsets—including items like interest and the detailed mechanics of allocation. Firms are advised to document and disclose discretionary elements and potential conflicts, regardless of whether the underlying conflict might seem self-evident or “immaterial” to investors. With the SEC’s sustained focus on this space, periodic reconciliation of fund agreements against actual fee receipts—and a robust conflicts disclosure framework—are wise risk management practices.
How Trillium Can Help
Testing and Surveillance: A key component of Trillium’s ongoing compliance support and compliance health check work is reviewing your firm’s practices in key risk areas against policies and procedures and firm disclosures to identify areas of non-compliance and improvement.