Here’s a shocker: Private equity firms charge unjustified fees to the companies they’ve acquired and don’t bother to tell their investors.
This revelation comes courtesy a review of 400 private equity firms by the SEC. While this might be a surprise to the average Joe investor on the street it shouldn’t be news to anyone who follows private equity. Firms like Blackstone (BX) and KKR (KKR) have been pulling these kinds of shenanigans for years.
Where does it all stop?
Regardless of how you feel about Jim Cramer, his take on private equity is right on the money. Private equity firms are concerned with their paycheck above all else — including the very companies they own. The truth is that private equity firms are established specifically to generate substantial revenue through fees charged for consulting and other services along with traditional fund management fees and carried interest. They don’t care about much else.
Not convinced? Let me show you three examples of IPOs in 2013 that were sponsored by private equity firms and charged fees that are fairly easy to construe as unjust.