On August 15th, the SEC charged TZP Management Associates with violating Section 206(2) of the Advisers Act between October 2018 and November 2023, related to the firm’s handling of management fee offsets.
Across multiple funds, TZP entered into management services agreements with its portfolio companies, allowing the firm to defer transaction fees at its discretion or when a related loan agreement required deferral. On several occasions, according to the SEC, TZP opted to defer transaction fees to increase the cash flow of its portfolio companies.
If transaction fees were deferred, TZP earned interest (payable by the portfolio company) on the deferred consideration. The problem, says the SEC, was that the firm breached its fiduciary duty to its limited partners by failing to disclose those interest payments.
Regulators allege the situation created a conflict of interest: the funds’ limited partnership agreements allowed TZP to collect transaction fees but required it to offset 100% of the amount collected against its management fees.
Although management services agreements between the firm and the funds’ portfolio companies allowed the Firm to defer transaction fees, the terms of those agreements were not disclosed to limited partners. As a result, LPs were unaware that TZP could choose to defer payments and receive interest that would not offset management fees.
According to the SEC, “this effectively resulted in interest-free loans from the Funds to TZP.” The agency found $423,065 of interest collected across five investments which should have provided a corresponding offset.
Making the situation marginally worse was a separate allocation error.
For at least one portfolio company backed by multiple TZP funds, the firm based the offset calculation on a reduced allocation of transaction fees to each fund based on pro rata invested capital—it then further reduced each fund’s allocation by fully diluted equity ownership.
According to the SEC, this “amounted to improper double counting,” lowering offsets and increasing fees by another $78,976. Combined with the interest omission, the SEC calculated excess management fees of $502,041.
Without admitting or denying the SEC’s findings, TZP settled and agreed to pay more than $683,000 in restitution and penalties.
The situation highlights the SEC’s continued interest in advisor fees and expenses, which the agency had previously called out as a focus item in its 2025 Examination Priorities. The key takeaway is that such focus may now be more ‘in the weeds’ than it has been in the past.
“This action calls attention to the SEC’s increasingly nuanced scrutiny of fee calculations,” cautions McDermott Will & Schulte.