SEC Brings Enforcement Action Against Private Fund Adviser for Fee Offset Related Conduct

On August 15, 2025, the U.S. Securities and Exchange Commission (SEC) brought a settled enforcement action against TZP Management Associates, LLC (TZP), a registered investment adviser to several private funds, concerning its calculation of credits and offsets to management fees (the Order).¹ The fee provisions in the relevant agreements for several of TZP’s private fund clients appear to have been open to multiple interpretations. This is the first fee calculation-related enforcement action brought against a private fund adviser under Chair Paul Atkins. While the enforcement action was issued quietly (i.e., without a press release) and included a relatively small $175,000 civil penalty (compared with sanctions imposed under Chair Gary Gensler), this enforcement action should serve as a reminder that private fund fees and expenses remain an area of focus for the SEC. 

The SEC’s Enforcement Action

The SEC’s order described TZP as a registered investment adviser to several private equity funds that invested in lower-middle market companies. According to the Order, each fund’s limited partnership agreement (LPA) permitted TZP to receive transaction fees, advisory fees, and monitoring fees, among others (together Transaction Fees) and required TZP to credit back to each fund a portion of the Transaction Fees. These credits would reduce or offset the management fees the funds owed to TZP.  

The SEC took issue with how TZP calculated credits and offsets in two respects. First, TZP’s management services agreements with portfolio companies, which certain limited partners received, permitted certain portfolio company related Transaction Fees to be deferred, either at TZP’s discretion or because of loan covenants, and allowed TZP to charge 8% annual interest on those Transaction Fees during the deferral period. The SEC Order found that for five portfolio company investments, TZP collected interest on deferred Transaction Fees but did not include interest received during the deferral period in the corresponding management fee offsets (and management fees were not offset during the deferral period). Notably, a reading of the Order suggests the management services agreement may have been silent with respect whether interest on certain Transaction Fees must be included in the credit calculation and offset against management fees. Nonetheless, the SEC found that TZP failed to disclose the arrangement and resulting conflicts of interest.  

Second, for at least one portfolio company in which multiple funds were invested, TZP initially allocated to each fund a portion of the Transaction Fees received based on each fund’s pro rata share of the total amount of capital the funds had invested instead of allocating “all” transaction-based Transaction Fees received by TZP as required by the LPAs. The Order found that the firm then reduced each fund’s allocation a second time based on each fund’s diluted equity ownership. The SEC found that this calculation was inconsistent with the LPAs, amounted to “double counting,” and reduced offsets owed to the funds, ultimately increasing management fees retained by TZP.

The SEC concluded that these practices violated Section 206(2) of the Investment Advisers Act of 1940, which prohibits advisers from engaging in transactions that operate as a fraud or deceit upon clients. To settle the matter, TZP agreed to pay a total of $683,877, including $502,041 in disgorgement, $6,836 in prejudgment interest, and a $175,000 civil penalty.  

Takeaways

Although the SEC did not conclude that the LPAs prohibited collecting interest on deferred fees, the action illustrates that the SEC will continue to examine, investigate, and challenge fee and expense practices and associated disclosure of the practices and associated conflicts of private fund advisers.

At the same time, the $175,000 civil penalty is lower than those imposed in other recent fee cases brought under SEC Chair Gensler² and instead is more in line with the approach to civil money penalties taken in similar cases under the Clayton Commission.³ Furthermore, the SEC Order does not find a compliance rule violation under Section 206(4)-7, which has been a common additional charge included in similar types of cases in recent years. While the facts and circumstances of each case factor into their respective penalties and charging decisions, at least with respect to penalties, this may be an early sign that the SEC’s approach for at least some matters under Chair Atkins may be more akin to those of the previous Republican administration than under Chair Gensler.

Regardless, this action should dispel the idea that the Atkins Commission will not pursue matters concerning potentially improper fees and related disclosures for fees, fee offsets, and expenses charged by advisers to their private fund clients. Moreover, this matter appears to have originated from the SEC Division of Examinations, which is consistent with our observation that examiners review fee and expense practices in the normal course of private fund adviser examinations. Private fund advisers should be particularly focused on fee and expense practices and disclosures as they consider opportunities to access retail investors, given that the SEC views disclosures in light of the sophistication of the audience. Advisers can always benefit from reviewing fee and expense arrangements, including whether all aspects of management services agreements, fee deferral, and allocation methodologies and related conflicts of interest are fully and clearly disclosed to investors and whether actual practice is consistent with such disclosures. Even where contract provisions are reasonably subject to differing interpretations, this action underscores that the SEC continues to expect transparency in disclosures of potential conflicts.

¹ Link here.

² See, e.g., 2024 SEC enforcement action imposing a civil penalty of $350,000, link here; 2023 SEC enforcement action imposing a civil penalty of $1.5 million, link here. 

³ See, e.g., 2020 SEC enforcement action imposing a civil penalty of $175,000, link here.