Among the benefits private equity firms like to claim—usually wrongly—that they bring to the companies they’ve bought and then levered to within an inch of their lives is the management expertise needed to turn around a business that may or may not have needed turning around but which by god is going to need it because of all the debt it now has. Certainly, this was the value proposition made by Monomoy Capital Partners to its investors, touting the effectiveness of its operations group.
Whether or not said group was effective, it is inarguable that Monomoy is not a philanthropic organization dedicated to helping underperforming companies improve their operations gratis. Or is it, because the SEC thinks someone believes that Monomoy would, in fact, be doing so out of the goodness of its own heart.
The SEC said that from 2012 to 2016, Monomoy charged companies it owned for the use of the firm’s so-called operations group. These were in-house employees who helped oversee business improvements and management of the companies in which the firm invested…. However, the SEC said the private-equity firm didn’t disclose that part of the cost of maintaining these employees would be paid for by the portfolio companies, rather than being borne entirely by Monomoy. In effect, that meant the costs would reduce returns to fund investors.