The Securities and Exchange Commission has fined private equity firm Welsh, Carson, Anderson & Stowe for failing to disclose that it had received compensation from a company that provided services to its portfolio companies.
Welsh Carson agreed to pay about $779,000 over the alleged conflict of interest, without denying or admitting to the regulator's findings, according to an SEC order dated April 24. A spokesperson for Welsh Carson didn't respond to an email seeking comment.
Transparency remains a concern for private equity investors represented by Institutional Limited Partners Association. Chris Hayes, director of industry affairs at ILPA, said in an email that the group continues to advocate for “ongoing, effective SEC oversight” of the private equity industry as “there are certain areas that remain opaque to LPs.”
The SEC had started cracking down on the private equity industry in 2015 under former chair Mary Jo White, fining KKR and Blackstone a combined $69 million over charges related to fee disclosures. But the regulator has since appeared to have shifted its focus to protecting individual investors, with new SEC chairman Jay Clayton having promised to protect the interests of “Mr. and Mrs. 401(k).”
"ILPA has long been concerned regarding transparency and disclosure of fees and expenses related to private equity funds,” Hayes said. "The SEC can protect investors and their beneficiaries by enforcing such disclosure.”
Welsh Carson, which focuses on healthcare and technology investments, has raised $22 billion from investors, according to its website. In its charges against the firm, the SEC claimed Welsh Carson had breached its fiduciary duty by failing to disclose the fees it had received from an unnamed service provider.
Beginning in 2008, companies in the private equity firm's portfolio used the service provider to purchase items such as office supplies and car rentals, according to the regulator. In 2012, Welsh Carson allegedly entered into an agreement with the group purchasing organization, which would give the private equity firm a share of the revenue generated from its portfolio companies’ continued use of the service provider.
The SEC said that Welsh Carson received about $623,000 in professional services fees from the agreement between September 2012 and December 2016. The earnings were not disclosed to the private equity firm’s limited partners, which included public pensions and endowments, according to the SEC.
Welsh Carson voluntarily stopped receiving fees from the group purchasing organization when the SEC began its investigation.