Accelerated monitoring fees
What are accelerated monitoring fees?
A portfolio company will often have to pay monitoring fees to their private equity advisers at set intervals (usually annually) over a set period of time (for example, 10 years), to cover the cost of their services.
However, if a portfolio company is sold during that set period of time, they will be charged an accelerated monitoring fee. This figure covers the cost of payments the advisers would have received for the rest of the 10 year period.
Where have you heard about accelerated monitoring fees?
In 2015, a private equity firm named Blackstone hit the news, as they had to pay a $39 million SEC settlement caused by accelerated monitoring fees. The issue appeared to be that the firm did not fully disclose fees, and as such their accelerated monitoring fees were not permitted.
What you need to know about accelerated monitoring fees.
Accelerated monitoring fees can be a controversial topic. Some see the fees as a fair way to cover payments that would have occurred, if circumstance hadn't changed.
However, to others the fees are seen as money for nothing. Paying accelerated monitoring fees is, essentially, paying for something that would have happened, but is not going too. If a company is sold, the service provided by the advisers is no longer needed, yet they still receive payment for it.