Photo credit: Shutterstock
Dr Ludovic Phalippou, Associate Professor of Finance at the Saïd Business School, and his coauthors Dr Christian Rauch and Professor Dr Mark Umber examined the portfolio fees of 592 US companies worth $1.1 trillion in total. In a new paper, Private Equity Portfolio Company Fees, they reveal that these companies paid a total of $20 billion to private equity firms over the last 20 years.
Dr Phalippou said the study raised questions about what these fees are for: 'It was odd for us to read that it is quite common for board members to claim various expenses and consulting fees to a company that they supervise,’ he said. ‘We decided to have a close and systematic look into this.'
The paper found that the monitoring and transaction fees were not related to business cycles, credit cycles, or to company characteristics. When these fees became news and were subject to US Securities and Exchange Commission (SEC) investigations, firms charging the least raised significantly more capital than they did before the financial crisis.