What Happened
On August 15, 2025, the SEC issued a settled administrative order against TZP Management Associates, LLC (TZP), a New York-based registered investment adviser to several private equity funds with approximately $2.4 billion in regulatory assets under management. The SEC charged TZP with violating Section 206(2) of the Investment Advisers Act of 1940, which prohibits an adviser from engaging in any transaction, practice, or course of business that operates as a fraud or deceit upon a client. Critically, Section 206(2) requires only negligence — not intent — to establish a violation. TZP settled without admitting or denying the allegations.
This action — the first fee calculation-related enforcement action brought against a private fund adviser under Chair Paul Atkins — matters for every CCO advising private funds. Some in the industry assumed the current administration would steer clear of nuanced, institutional-investor-only fee cases. This order should put that assumption to rest.
The Two Fee Calculation Failures
The SEC's order, covering conduct between October 2018 and November 2023, identified two distinct miscalculations, both rooted in TZP's deviation from the plain language of its limited partnership agreements (LPAs).
Failure 1 — Interest on Deferred Transaction Fees Not Credited as an Offset. Each fund's LPA required TZP to credit 100% of Transaction Fees received from portfolio companies back to the relevant fund as an offset against management fees. Certain management services agreements between TZP and portfolio companies permitted Transaction Fees to be deferred — either at TZP's sole discretion or when loan covenants at the portfolio company level prohibited payment — with TZP charging 8% annual interest on the deferred amounts. When TZP eventually collected both the deferred fees and the accrued interest, it credited only the principal Transaction Fee amount against fund-level management fees, retaining the interest for itself. The LPAs did not explicitly exclude interest from the offset requirement, and TZP did not disclose to investors that it was collecting this interest or that it was being excluded from the offset calculation. The SEC characterized this as effectively giving TZP interest-free loans at investor expense.
Failure 2 — Double Reduction in Multi-Fund Allocations. For at least one portfolio company in which multiple TZP funds co-invested, TZP allocated transaction fees among the funds based on each fund's pro rata share of invested capital, then applied a second reduction based on fully diluted equity ownership. This double-counting was inconsistent with the LPA allocation methodology and resulted in lower fee offsets — and correspondingly higher management fees — for TZP. TZP did not disclose this calculation method to investors.
Together, these two practices yielded more than $500,000 in excess management fees: approximately $423,000 from the retained interest, and approximately $79,000 from the duplicated reduction formula.
The Settlement Terms
TZP agreed to a cease-and-desist order and censure, and paid $502,041 in disgorgement, $6,836 in prejudgment interest, and a $175,000 civil penalty, for a total of $683,877. TZP was also required to conduct a distribution to harmed investors. Notably, the SEC did not charge violations of Rule 206(4)-7 (the Compliance Rule) or Rule 206(4)-8 (the anti-fraud rule for pooled investment vehicles), even though prior administrations routinely added those charges to similar fact patterns. Practitioners have noted this appears to reflect a calibrated — not a lenient — approach by the current SEC.
Why This Matters Now
The TZP order carries three signals worth internalizing:
First, fee oversight has survived the change in administration. The action was brought on a non-scienter basis under Section 206(2). TZP did not need to intend harm; operational sloppiness and ambiguous LPA language were enough. The SEC's ongoing focus on management fee calculation practices continues despite talk of deregulation and a shift toward cases involving fraud and manipulation.
Second, contractual ambiguity is not a safe harbor. The SEC did not conclude that the LPAs expressly prohibited TZP from collecting interest on deferred fees — but the absence of explicit authorization for retaining that interest, combined with TZP's failure to disclose the practice, was sufficient to support the fraud charge. If your fund documents are silent or ambiguous on a fee-related point that benefits the adviser, that gap is a disclosure obligation, not a loophole.
Third, the case was issued quietly — without a press release — and carried a relatively modest penalty by historical standards. Do not let the low-profile settlement distract you from the substantive precedent: private fund fees and expenses remain an area of active SEC examination and enforcement, even for institutional-only funds where the LPs are sophisticated investors.
What to Do Now
The following steps are framed as actions you should consider undertaking. Some may be mandatory depending on your specific fund documents and compliance program obligations under Rule 206(4)-7.
1. Pull and re-read your LPAs — every fee provision. Specifically map the definition of 'Transaction Fees' (or its equivalent in your documents) to the list of compensation streams your firm actually receives from portfolio companies, including monitoring fees, advisory fees, consulting fees, deal fees, break-up fees, and any interest on deferred amounts. Identify every instance where your LPA is ambiguous or silent on whether a payment type is subject to the offset requirement.
2. Trace the offset calculation from source to invoice. For each fund, consider requesting a full look-back reconciliation that traces how management fee offsets were calculated at each billing period, verifying that (a) all Transaction Fees actually received — including interest on any deferred fees — were captured in the offset pool, and (b) the allocation methodology applied to multi-fund investments matches the formula stated in the LPA exactly, with no double-reduction or other deviation.
3. Test your multi-fund allocation logic. If your firm manages multiple funds that co-invest in the same portfolio companies, the TZP order highlights how fee allocation errors can compound across funds. Consider having operations staff document the step-by-step math and have compliance independently verify that the result matches the LPA allocation formula — not just the general approach, but the precise calculation.
4. Review disclosure in Form ADV Part 2A and investor materials. Your Form ADV Part 2A must describe all material conflicts of interest related to compensation. Consider reviewing your current disclosures to confirm they accurately describe (a) the types of fees you receive from portfolio companies, (b) how and when those fees are offset against management fees, (c) any adviser discretion over deferral of those fees, and (d) how interest on deferred fees is treated. Gaps between operational practice and disclosed methodology are precisely what the SEC targeted in TZP.
5. Formalize cross-functional review between finance and compliance. The TZP action illustrates the risk of siloing fee calculations entirely within a finance team that lacks compliance context. Consider establishing a formal periodic review — at minimum annually — where compliance tests the fee billing and offset calculations against the LPA terms and current disclosures, rather than relying solely on finance's internal verification.
6. Document everything. When your compliance review identifies an ambiguity in an LPA, document the interpretation your firm adopted, why it is consistent with the document's plain meaning or intent, and how you disclosed it. Under Section 206(2), the absence of documented, disclosed reasoning for any adviser-favorable interpretation of an ambiguous term is an exposure.
Bottom Line
The TZP enforcement action — IA Rel. No. 6908 (Aug. 15, 2025) — is a reminder that fee and expense oversight is not a Gensler-era artifact. It follows a theme the SEC has enforced consistently since the 'Spreading Sunshine' era: private equity advisers must honor fee and expense provisions to the letter and fully disclose any conflicts arising from portfolio-company charges. The dollar amounts at stake in any individual fund may seem manageable, but the reputational, regulatory, and LP-relationship consequences of a fee overcharge finding are not. CCOs should use this order as an internal audit trigger — today, not at year-end.