It started with KKR. On June 29, the US Securities and Exchange Commission (SEC) charged the private equity giant with violating its fiduciary duty by charging clients for its own expenses on failed deals. 

As the summer draws to a close, it has become clear that the SEC was only the first of more than a dozen powerful public entities to voice the same accusation: Private equity’s fees practices are unfair, sometimes illegal, deeply opaque, and tilted too heavily in favor of general partners at the expense of investors. 

KKR agreed to pay a $10 million fine for its actions—a small sum relative to the attention the case drew from asset owners and KRR’s fellow private equity firms. The terms of the settlement did not require KKR to admit to or deny the charges. When reached by CIO following the fine’s announcement, a spokesperson said, “KKR is firmly committed to upholding the highest governance and transparency standards, and we remain dedicated to continually enhancing our practices on behalf of our fund investors.”

The SEC secured $19 million in client reimbursements in addition to the $10 million penalty. This was not enough to satisfy a coalition of 13 major state retirement systems. Together, on July 21, comptrollers and treasurers representing funds for New York, California, Virginia, Missouri, and many other states sent an open letter to SEC Chair Mary Jo White urging the regulator to tighten disclosure rules for the asset class.

Limited partners, they argued, often could not determine if the fees charged were legitimate. The SEC had to force transparency on private equity firms, these powerhouse clients argued, indicating that their managers weren’t going to open up voluntarily. 

“Complexity, combined with a lack of industry disclosure best practices, has led to an uneven playing field for state fiduciaries seeking to report private equity fees fully,” the coalition wrote.

New York City’s Comptroller Scott Stringer put it more bluntly. “It’s time to take the detective work out of how private equity managers report their fees,” he said. “Billing practices are cryptic at best and many partnership statements are so vague they could be considered purposefully opaque.”    

The final US public entity to throw its weight behind the issue was the most powerful—at least in the volume of assets under its control and notorious gangsters it has sent to jail. 

On July 23, the Internal Revenue Service (IRS) proposed new regulations to combat the common private equity strategy of waiving management fees for a greater portion of profits earned. As a result, these managers pay capital gains tax on roughly 2% of their assets under management as opposed to standard income taxes. For the IRS, that represents a 50% haircut on revenue from management fees, assuming the current 20% federal capital gains tax and a manager earning more than $432,201—which is essentially all of them. 

In keeping with the tone set by the SEC and coalition of public plans, the IRS made clear its displeasure with private equity’s fee-shifting. The 44-page proposal, widely covered by mainstream and financial publications alike, arrived under the title, “Disguised Payments for Service.” 

Amid this blizzard of criticism in the last few months, private equity firms themselves had tended to remain quiet.

Related: KKR Fined $30M for Breach of Fiduciary Duty; State Pensions Demand SEC Action on PE Fees; Start Soul Searching, CalPERS CIO Tells Private Equity