UNITED STATES OF AMERICA

Before the
SECURITIES AND EXCHANGE COMMISSION

INVESTMENT ADVISERS ACT OF 1940

Release No. 4830 / December 21, 2017

ADMINISTRATIVE PROCEEDING
File No. 3-18317

In the Matter of
ORDER INSTITUTING CEASE-AND-
TPG Capital Advisors, LLC, DESIST PROCEEDINGS PURSUANT TO
SECTION 203(k) OF THE INVESTMENT
Respondent. ADVISERS ACT OF 1940, MAKING
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 203(k) of the Investment
Advisers Act of 1940 (“Advisers Act”) against TPG Capital Advisors, LLC (“TPG” or
“Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer

of Settlement (the “Offer”), which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over it and the subject matter of these
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940,
Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds1 that:
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The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or entity in
this or any other proceeding.

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 SUMMARY

1. These proceedings arise from inadequate disclosures that involved a breach of

fiduciary duty by private equity fund adviser TPG. From at least April 2013 through April 2015
(“Relevant Period”), upon either the private sale or an initial public offering (“IPO”) of a portfolio
company, TPG terminated certain portfolio company monitoring agreements and accelerated the
payment of future monitoring fees pursuant to the agreements. Although TPG disclosed that it may
receive monitoring fees from portfolio companies held by the funds it advised, and disclosed the
amount of monitoring fees that had been accelerated following the acceleration, TPG failed to
disclose to its funds, and to the funds’ limited partners prior to their commitment of capital, that it
may accelerate future monitoring fees upon termination of the monitoring agreements. Because its
receipt of accelerated monitoring fees from four portfolio companies was a conflict of interest for
TPG, it could not effectively consent to this practice on behalf of the funds it advised. As a result,
TPG breached its fiduciary duty to the funds in violation of Section 206(2) of the Advisers Act,
and also violated Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.

2. TPG separately violated Section 206(4) of the Advisers Act and Rule 206(4)-7
thereunder by failing to adopt and implement written policies and procedures reasonably designed
to prevent violations of the Advisers Act arising from the conflicts of interest associated with its
undisclosed receipt of fees.

RESPONDENT

3. TPG Capital Advisors, LLC is a Delaware limited liability company with its
principal place of business in Fort Worth, Texas. TPG is a private equity fund adviser that has been
registered with the Commission as an investment adviser since January 6, 2012. TPG manages
TPG Partners V, L.P.; TPG Partners VI, L.P; and TPG Biotechnology Partners III, L.P.

OTHER RELEVANT ENTITIES

4. TPG Partners V, L.P. (“TPG Partners V”) is a Delaware limited partnership and
private investment fund formed in 2006 to make private equity investments.

5. TPG Partners VI, L.P. (“TPG Partners VI”) is a Delaware limited partnership
and private investment fund formed in 2008 to make private equity investments.

6. TPG Biotechnology Partners III, L.P. (“TPG Biotech III”) is a Delaware limited
partnership and private investment fund formed in 2008 to make venture capital investments in
companies in the biotechnology and related life sciences industries.

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 FACTS

A. Background

7. TPG is a Fort Worth-based private equity fund adviser. TPG’s private equity
platform has approximately $52 billion in regulatory assets under management as of January 1,
2017.

8. TPG has advised multiple private equity funds, including TPG Partners V, TPG
Partners VI, and TPG Biotech III (collectively, the “Funds”), each of which was or is governed by
a limited partnership agreement (“LPA”) setting forth the rights and obligations of its limited
partners, including their obligations to pay advisory and other fees and expenses to TPG pursuant
to a separate management agreement between each Fund and TPG. As is typical in the industry,
among other fees and expenses, TPG generally charges the limited partners in its Funds an annual
advisory or “management fee” equivalent to between 1% and 2% of their capital under
management. In addition, as a general partner in the Funds, TPG generally receives a profit interest
or carried interest of 20% of the net profits realized by the limited partners in the Funds.

9. Each Fund’s LPA established a Limited Partnership Advisory Committee

(“LPAC”) consisting of a number of limited partners. The functions of the LPAC include, among
other things, the review and ability to object to any potential conflicts of interest between TPG and
the Fund (including those relating to the receipt of certain fees, such as portfolio company
monitoring fees).

B. Acceleration of Monitoring Fees

10. Each TPG-advised Fund owns or partially owns multiple portfolio companies
(each, a “Portfolio Company”). TPG typically enters into monitoring agreements with each
Portfolio Company. Pursuant to the terms of the monitoring agreements, TPG charges each
Portfolio Company an annual fee in exchange for rendering a broad range of consulting and
advisory services to the Portfolio Company concerning its financial and business affairs. The
monitoring fees paid by each Portfolio Company to TPG are in addition to the annual management
fee paid by the Funds’ limited partners to TPG. However, a certain percentage of the monitoring
fees the Portfolio Companies pay to TPG are used to offset a portion of the annual management
fees that the Funds’ limited partners would otherwise pay to TPG. The offset percentage, which
was between 65 percent and 75 percent, depending on the Fund at issue, is negotiated by TPG and
the limited partners for each Fund, and is set forth in each Fund’s management agreement.

11. TPG’s practice of entering into monitoring agreements with Portfolio Companies
and collecting monitoring fees is disclosed and authorized in various pre-commitment fund
documents, including private placement memoranda (“PPMs”), LPAs and management
agreements. For example, the PPMs state that “[t]he General Partner and its affiliates also may
receive customary break-up and topping fees, commitment fees, monitoring and directors’ fees and

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transaction, financing, divestment and other similar fees from Portfolio Companies as
compensation for financial advisory and similar services.”

12. TPG monitoring agreements commonly provided for up to ten years of monitoring
services and fees. Certain TPG monitoring agreements previously contained so-called “evergreen”
provisions that automatically extended the life of the agreement for an additional term. Some
monitoring agreements between TPG and the Portfolio Companies also provided for acceleration
of monitoring fees to be triggered by certain events. For example, upon either the private sale or
IPO of a Portfolio Company, such monitoring agreements allowed TPG to terminate the
monitoring agreement and accelerate the remaining years of monitoring fees, and receive present
value lump sum “termination payments.” TPG offset a portion of the accelerated monitoring fees
as transaction fees against the management fees otherwise payable by the limited partners, rather
than treat them as gains subject to the carry provisions.

13. There are four accelerated monitoring fees at issue. In one instance, TPG
terminated the monitoring agreement and accelerated monitoring fee payments even though the
relevant TPG-advised Fund was exiting the Portfolio Company, meaning that TPG would no
longer be providing monitoring services to the Portfolio Company. In the other three instances,
TPG terminated the monitoring agreement upon partial sale or IPO of a Portfolio Company and
accelerated monitoring fee payments while maintaining some ownership stake in the company. In
connection with these transactions, TPG has continued to provide consultancy and advisory
services to the Portfolio Companies pending the Funds’ exit from their investments. The exact
timing of the exits following the IPOs and the partial sale generally is not known because the
Funds continue to own, and have owned for several years, an interest in these companies.

14. While TPG disclosed its ability to collect monitoring fees to the Funds and to the
Funds’ limited partners prior to their commitment of capital, it did not disclose to the Funds, the
Funds’ LPAC, or the Funds’ limited partners its receipt of accelerated monitoring fees in the PPMs
and LPAs. The disclosures were made in LPAC reports, portfolio company Form S-1 filings, and
TPG’s Form ADV filed April 1, 2013. By the time these disclosures were made, the limited
partners had already committed capital to the Funds. The LPAC of each Fund could have,
pursuant to the provisions of the LPAs, objected to the accelerated monitoring fees after they had
been taken, but never did. Because of its conflict of interest as the recipient of the accelerated
monitoring fees, TPG could not effectively consent to the practice on behalf of the Funds.

C. TPG Failed to Adopt and Implement Policies and Procedures Reasonably

Designed to Prevent Violations of the Advisers Act and its Rules

15. As a registered investment adviser, TPG is subject to the Advisers Act rules,
including the requirement to adopt and implement written policies and procedures reasonably
designed to prevent violations of the Advisers Act and its rules.

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 16. From at least January 2012 through April 2015, while TPG was registered with the
Commission as an investment adviser, it failed adequately to disclose or obtain the consent of the
Funds to its receipt of accelerated monitoring fees.

17. Despite the practice of receiving accelerated monitoring fees, TPG did not adopt or
implement any written policies or procedures reasonably designed to prevent violations of the
Advisers Act or its rules arising from the conflicts of interest associated with the undisclosed
receipt of fees.

VIOLATIONS

18. Section 206(2) of the Advisers Act prohibits investment advisers from directly or
indirectly engaging “in any transaction, practice, or course of business which operates as a fraud or
deceit upon any client or prospective client.” A violation of Section 206(2) of the Advisers Act
may rest on a finding of simple negligence. SEC v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir.
1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195 (1963)). Proof of
scienter is not required to establish a violation of Section 206(2) of the Advisers Act. Id. As a
result of the negligent conduct described above, TPG violated Section 206(2) of the Advisers Act.

19. Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder make it unlawful
for any investment adviser to a pooled investment vehicle to “[m]ake any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in the light of
the circumstances under which they were made, not misleading, to any investor or prospective
investor in the pooled investment vehicle” or “engage in any act, practice, or course of business
that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in
the pooled investment vehicle.” As a result of the negligent conduct described above, TPG
violated Section 206(4) of the Advisers Act, and Rule 206(4)-8 thereunder.

20. Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder require registered
investment advisers to adopt and implement written policies and procedures reasonably designed
to prevent violations of the Advisers Act and its rules. As a result of the negligent conduct
described above, TPG violated Section 206(4) of the Advisers Act, and Rule 206(4)-7 thereunder.

TPG’S COOPERATION

21. In determining to accept TPG’s offer, the Commission considered the

cooperation afforded the Commission staff after TPG was contacted. Throughout the staff’s
investigation, TPG voluntarily and promptly provided documents and information to the staff.
TPG met with the staff on multiple occasions and provided detailed factual summaries of relevant
information. TPG was extremely prompt and responsive in addressing staff inquiries.

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 IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent’s Offer.

Accordingly, pursuant to Section 203(k) of the Advisers Act, it is hereby ORDERED that:

A. Respondent cease and desist from committing or causing any violations and any
future violations of Sections 206(2) and 206(4) of the Advisers Act, and Rules
206(4)-7 and 206(4)-8 thereunder.

B. Respondent shall pay disgorgement and prejudgment interest as follows:

1. Respondent shall pay $9,849,128.79 consisting of disgorgement of

$9,487,620.80 and prejudgment interest of $361,507.99 pursuant to the
provisions of this Subsection B.

2. Within ten (10) days of the entry of this Order, Respondent shall deposit the
full amount of the disgorgement and prejudgment interest, as described in
paragraph (1) of this Subsection B (collectively the “Disgorgement Fund”)
into an escrow account at a financial institution not unacceptable to the
Commission staff and shall provide the Commission staff with evidence of
such deposit in a form acceptable to the Commission staff. If timely
payment of the Disgorgement Fund into the escrow account is not made by
the required payment date, additional interest shall accrue pursuant to SEC
Rule of Practice 600.

3. Respondent shall be responsible for administering the Disgorgement Fund.

Respondent shall distribute the Disgorgement Fund to the limited partners
based on each Fund’s share of the accelerated monitoring fee payments
described in this Order for the time period of April 15, 2013 through April
30, 2015, and, in turn, each limited partner’s pro rata interest in the Funds
during the Relevant Period, pursuant to a disbursement calculation (the
“Calculation”) that has been submitted to, reviewed, and approved by the
Commission staff in accordance with this Subsection B. Under no
circumstances shall any distribution be made to TPG, any limited partner
affiliated with TPG, or to anyone directly or indirectly in the name of or
otherwise for the benefit of TPG.

4. Within thirty (30) days of the entry of this Order, Respondent shall submit a
proposed Calculation to the staff for review and approval. The proposed
Calculation will include the names of the limited partners, a description of
the methodology used, and the payment amounts. Respondent also shall
provide to the Commission staff such additional information and supporting

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 documentation as the Commission staff may request for its review. In the
event of one or more objections by the Commission staff to the proposed
Calculation or any of its information or supporting documentation,
Respondent shall submit a revised Calculation for the review and approval
of the Commission staff or additional information or supporting
documentation within ten (10) days of the date that Respondent is notified
of the objection, which revised calculation shall be subject to all of the
provisions of Subsection B. After the Calculation has been approved by the
Commission staff, Respondent shall submit a payment file (the “Payment
File”) for review and acceptance by the Commission staff demonstrating the
application of the methodology to each affected limited partner. The
Payment File should identify, at a minimum, (i) the name of each affected
limited partner; (ii) the exact amount of the payment to be made; and (iii)
the amount of any de minimis threshold to be applied.

5. Respondent shall distribute the Disgorgement Fund within the next fiscal
quarter immediately following the entry of this Order but no later than
within ninety (90) days of the date of the Order, unless such time period is
extended by the Commission staff as provided in Paragraph 9 of this
Subsection B. Such distribution is to be based on the methodology set forth
in the Calculation and as reviewed and not objected to by the staff.

6. If Respondent does not distribute any portion of the Disgorgement Fund for
any reason, including factors beyond its control, Respondent shall transfer
any such undistributed funds to the Commission for transmittal to the
United States Treasury in accordance with Section 21F(g)(3) of the
Securities Exchange Act of 1934 after the final accounting provided for in
Paragraph 8 of this Subsection B is submitted to the Commission staff. Any
such payment shall be made in one of the following ways: (1) electronically
to the Commission, which will provide detailed ACH transfer/Fedwire
instructions upon request; (2) direct payment from a bank account via
Pay.gov through the SEC website at www.sec.gov/about/offices/ofm.htm;
or (3) by certified check, bank cashier’s check, or United States postal
money order, made payable to the Securities and Exchange Commission
and hand-delivered or mailed to:

Enterprise Services Center

Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter

identifying TPG Capital Advisors, LLC as Respondent in these

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 proceedings, and the file number of these proceedings; a copy of the cover
letter and check or money order must be sent to Dabney O’Riordan, co-
Chief, Asset Management Unit, Division of Enforcement, Securities and
Exchange Commission, 444 South Flower Street, Suite 900, Los Angeles,
CA 90071.

7. Respondent shall be responsible for administering the Disgorgement Fund

and may hire a professional to assist it in the administration of the
distribution. The costs and expenses of administering the Disgorgement
Fund, including any such professional services, shall be borne by the
Respondent and shall not be paid out of the Disgorgement Fund.

8. Within 270 days after Respondent completes the disbursement of all

amounts payable to affected limited partners, Respondent shall return all
undisbursed funds to the Commission. The Respondent shall then submit to
the Commission staff a final accounting and certification of the disposition
of the Disgorgement Fund for Commission approval. The final accounting
and certification shall include, but not be limited to: (i) the identification of
each limited partner payee and the amount paid or credited to each limited
partner (designated by Fund); (ii) the date of each payment or credit; (iii)
the check number or other identifier of money transferred or credited to the
limited partner; (iv) the amount of any returned payment and the date
received; (v) a description of the efforts to locate a prospective payee whose
payment was returned or to whom payment was not made for any reason;
(vi) the total amount, if any, of any amounts not distributed to be forwarded
to the Commission for transfer to the United States Treasury; and (vii) an
affirmation that Respondent has made payments from the Disgorgement
Fund to the affected limited partners in accordance with the Calculation
approved by the Commission staff. Respondent shall submit the final
accounting and certification, together with proof and supporting
documentation of such payments and credits (whether in the form of
electronic payments or cancelled checks) in a form acceptable to
Commission staff under a cover letter that identifies Respondent in these
proceedings and the file number of these proceedings, to Dabney
O’Riordan, co-Chief, Asset Management Unit, Division of Enforcement,
Securities and Exchange Commission, 444 South Flower Street, Suite 900,
Los Angeles, CA 90071, or such other address the Commission staff may
provide. Respondent shall provide any and all supporting documentation for
the accounting and certification to the Commission staff upon its request
and shall cooperate with any additional requests by the Commission staff in
connection with the accounting and certification.

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 9. The Commission staff may extend any of the procedural dates set forth in
this Subsection B for good cause shown. Deadlines for dates related to the
Disgorgement Fund shall be counted in calendar days, except that if the last
day falls on a weekend or federal holiday, the next business day shall
considered to be the last day.

C. Respondent shall, within 10 days of the entry of this Order, pay a civil money
penalty of $3,000,000 to the Securities and Exchange Commission for transfer to
the general fund of the United States Treasury in accordance with Exchange Act
Section 21F(g)(3). If timely deposit of the civil penalty is not made by the required
payment date, additional interest shall accrue pursuant to 31 U.S.C. 3717. The
payment shall be made in accordance with Section IV.B.6. of this Order.

D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be
treated as penalties paid to the government for all purposes, including all tax
purposes. To preserve the deterrent effect of the civil penalty, Respondent agrees
that in any Related Investor Action, it shall not argue that it is entitled to, nor shall it
benefit by, offset or reduction of any award of compensatory damages by the
amount of any part of Respondent’s payment of a civil penalty in this action
(“Penalty Offset”). If the court in any Related Investor Action grants such a
Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final
order granting the Penalty Offset, notify the Commission's counsel in this action
and pay the amount of the Penalty Offset to the Securities and Exchange
Commission. Such a payment shall not be deemed an additional civil penalty and
shall not be deemed to change the amount of the civil penalty imposed in this
proceeding. For purposes of this paragraph, a “Related Investor Action” means a
private damages action brought against Respondent by or on behalf of one or more
investors based on substantially the same facts as alleged in the Order instituted by
the Commission in this proceeding.

By the Commission.

Brent J. Fields
Secretary