Will Blackstone's Strategy to Forego Fees Work in its Favor? - Analyst Blog

The Blackstone Group L.P. (BX) plans to forego the additional consulting fees it receives at the time of selling or listing its portfolio companies. This leading buyout firm has been facing pressure from its fund investors as well as regulators for charging these extra fees, which led it to formulate a written exchange with one of its fund investors according to people familiar with the matter.

The fee under debate – the consulting or monitoring fees – is an added burden on the companies the buyout firms intend to buy. Buyout firms use these additional fees along with the regular management fees that they get from the fund investors to cover business costs.

Though limiting this fee practice will cost Blackstone millions of dollars, it will prove to be beneficial for fund investors of the company including pension funds and university endowments limited partners. Charging such fees lessen the return of fund investors, compelling them to demand either a share in these fees or completely discarding such a practice.

While Blackstone's effort to resolve the tiff with its fund investors is commendable, it will also influence other buyout firms to follow suit. Blackstone is a member of the Private Equity Growth Capital Council, which also includes other large buyout firms like Carlyle Group LP (CG), Apollo Global Management, LLC (APO) and Kohlberg Kravis Roberts & Co. L.P. (KKR).

Further, this move by Blackstone will be appreciated by the Securities and Exchange Commission (SEC) as well, under the supervision of which, several buyout firms were found to be in violation of the law, mainly for collection of fees and distribution of expenses.

Currently, Blackstone carries a Zacks Rank #3 (Hold).

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