On June 9, 2026, the SEC’s Division of Examinations issued a Risk Alert titled Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest. While the alert’s examples lean toward retail advisory practices — cash sweep programs, money market fund share classes, and margin loan markups — the underlying compliance failures it describes are entirely recognizable to private equity managers. The themes of undisclosed revenue, misleading disclosure language, fees inconsistent with governing agreements, and compliance programs that do not match actual practices are, in fact, defining features of SEC enforcement actions against private fund advisers in recent years. Private equity managers would be wise to read this Risk Alert not as someone else’s problem, but as a mirror.
“May” Is Not Enough
One of the Risk Alert’s sharpest observations involves the use of the word “may” in conflict disclosures. The SEC was explicit: disclosing that an adviser may receive a benefit is inadequate when the adviser actually does receive that benefit. Disclosures that precede a long list of theoretical conflicts — without distinguishing which conflicts are real and present — obscure rather than inform.
This problem is pervasive in private equity Form ADV disclosures. A manager that charges transaction fees to portfolio companies and offsets them against management fees must disclose that it does so — not that it may do so. The SEC’s 2025 enforcement action against TZP Management Associates illustrates the point precisely: TZP’s disclosures failed to adequately describe its actual practices around the deferral of transaction fees and the resulting interest it retained, and the firm paid nearly $684,000 in disgorgement, interest, and penalties. Vague, permissive language did not protect TZP — it contributed to the finding of a fiduciary breach.
Affiliated Revenue Is a Conflict That Must Be Named
The Risk Alert found that advisers consistently failed to disclose revenue flowing from affiliated parties — including revenue from custodians based on client cash balances and economic benefits from affiliated broker-dealers. The SEC’s position is straightforward: if a related party earns money because of your clients’ assets, that is a conflict, and it must be disclosed fully and fairly.
In the private equity context, affiliated service providers are a perennial examination focus. Fund managers that route portfolio company legal, accounting, consulting, or operating work to affiliated firms — or that earn monitoring fees, origination fees, or advisory fees through affiliated entities — must disclose those arrangements with specificity. The SEC’s 2014 and 2015 orders against Apollo Global Management and Blackstone remain instructive: both firms were charged with inadequate disclosure of accelerated monitoring fee arrangements and benefits flowing to affiliated entities that were not fully transparent to LPs. The lesson has not changed. If an affiliate benefits, the disclosure must say so — and say how.
Fees Must Match the Agreement — Every Time
A significant portion of the Risk Alert is devoted to fee calculation errors: advisers charging fees on assets excluded under the advisory agreement, failing to apply breakpoints, not issuing refunds on termination, and billing twice for the same services due to internal transfers. In each case, the problem was not that the adviser had a bad fee arrangement — it was that the actual billing practice diverged from what the agreement and disclosures said.
Private equity managers face the same risk in a more complex billing environment. Management fee calculations that involve committed versus invested capital bases, mid-period fund closes, recycled capital, and portfolio company-level offsets create ample opportunity for the sort of calculation errors the SEC described. The TZP case again serves as a cautionary example: the firm’s double-counting of fee offset reductions in multi-fund allocations was not a deliberate scheme — it was a calculation methodology that conflicted with what the LPAs actually required. The SEC found a fiduciary breach regardless of intent.
Managers should periodically reconcile every line of their management fee calculations against the operative LPA language — not just the fee rate, but every step of the calculation: the base, the offset mechanics, the timing, and the allocation methodology across funds.
Your Compliance Program Must Reflect Your Actual Practice
The Risk Alert noted that many advisers had policies and procedures that did not actually describe how their billing was executed — or that contained internal inconsistencies between the compliance manual, the Form ADV, and the client agreements. The SEC found this independently problematic under the Compliance Rule, separate from the disclosure failures themselves.
For private equity managers, this observation requires some translation. Unlike retail advisers who may bill dozens or hundreds of client accounts under a standardized fee schedule, PE management fee calculations are highly individualized — varying by fund vintage, capital base (committed versus invested), offset methodology, recycling provisions, LP-specific fee waivers, and fund-specific carry structures. Attempting to codify every permutation of these arrangements into a compliance manual would be both unworkable and counterproductive.
The right approach — and the one that holds up on examination — is for compliance policies to establish process and controls, not replicate the economics. A well-drafted PE compliance program will require that management fees be calculated in accordance with the applicable LPA and PPM, designate responsibility for the calculation, require independent review or sign-off before fees are charged, and establish a periodic reconciliation process to confirm that the calculation matches the governing documents. The LPA is the source of truth; the compliance policy ensures that someone is checking the math against it.
What the SEC is actually looking for — and what the Risk Alert flags — is not whether the compliance manual lists every fund-specific mechanic, but whether the firm has controls in place to catch errors before they become overcharges, and whether those controls are documented and followed. The TZP enforcement action is instructive here: the calculation errors were not the result of an absent compliance program — they were the result of a billing methodology that had drifted from what the LPAs required, without anyone catching or correcting it.
Practical Takeaways
The SEC’s Risk Alert is a direct preview of what examination teams will be testing. Private equity managers should use it as a self-assessment checklist:
- Review all conflict disclosures in Form ADV Part 2A. Replace “may receive” language with “does receive” wherever a conflict is actual and present. Ensure affiliated revenue streams — monitoring fees, transaction fees, interest on deferred fees, and payments from service providers — are each described specifically.
- Check your compliance program’s fee controls, not its fee details. Compliance policies for PE managers should require that fees be calculated per the LPA and PPM, assign responsibility for the calculation, mandate independent review before billing, and establish a periodic reconciliation process. The policy does not need to — and should not try to — replicate every fund-specific mechanic. It needs to ensure someone is verifying the math against the documents that actually govern it.
- Audit your compliance program for gaps. Policies and procedures that do not address your firm’s actual fee arrangements — including any custom or fund-specific mechanics — are a finding waiting to happen.
- Test for overcharges and document the results. The Risk Alert described multiple instances of advisers returning money to clients after examination findings. A proactive internal review is far preferable to a disgorgement order.
The SEC has been clear that economic conflicts of interest are a standing examination priority and are likely to remain so. For private equity managers, the path forward is the same one it has always been: transparency, precision, and the discipline to ensure that what you say you do is exactly what you do.
How Trillium Can Help
Trillium’s compliance program support and health check services include a detailed review of fee calculation practices, Form ADV conflict disclosures, and compliance policy coverage — with a specific focus on identifying gaps between governing documents, disclosures, and actual firm practices before an SEC examiner does.