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Carlyle and CVC have agreed to hand UBS a cut of their performance fees in return for the bank selling the private equity firms’ products to wealthy individuals, prompting questions about potential conflicts of interest.
Washington-based Carlyle has agreed to share carried interest from its evergreen secondaries fund, according to three people familiar with the matter. Amsterdam-listed CVC had also agreed to let the Swiss private bank share performance fees in an evergreen fund, two of the people said.
At least two other managers of major private capital funds for individual investors declined UBS’s requests to share their fees, other people familiar with the situation said.
“How is this affecting UBS’s selection judgment?” said one private capital executive, who questioned whether the bank would be more likely to sell funds from firms that split their fees. Another executive also described it as a potential conflict of interest.
The unusual fee structure negotiated by the world’s second-biggest wealth manager points to the potentially lucrative incentives for wealth managers and private banks to push private equity, private credit and other alternative assets to retail investors.
“They are very aggressive with how they push this” on fund managers, said another top private equity executive about UBS.
There is no suggestion that UBS’s agreements with Carlyle or CVC raised fees for the end investors.
The world’s biggest private markets firms have been racing to launch so-called evergreen funds designed to suit individual investors, as commitments to the sector from its traditional institutional backers have slowed.
Distributors such as UBS have generally been charging the private capital firms a placement fee — a small percentage of the cash they bring in — four people in the industry said.
But as competition to clinch one of the limited places on the shelves of top distributors has stiffened, managers have started to agree to share their fee revenue, according to André Schnurrenberger, co-founder of consultancy Novantigo.
People in the private capital sector said UBS was such a large player that it carried particular clout with firms seeking to grow their funds for wealthy individuals as quickly as possible.
EQT had agreed to share some of its management fees from its US infrastructure evergreen fund, another person familiar with the matter said.
UBS said the selection of private capital firms was “based on our robust investment and due diligence process”.
“We have a leading alternative investments offering for our clients at competitive conditions. Fee arrangements are in line with market practices and are disclosed to clients.”
A person close to the bank said placement fees were “very typical” and that management fee shares had become “more common in recent years”.
They added that where UBS received a share of performance fees, this was disclosed to clients in fund prospectuses.
One former private equity executive said that before the advent of evergreen funds — which allow individuals to invest and withdraw their money at regular intervals, providing greater liquidity than traditional fund structures — private equity firms would not typically share fees with private banks operating feeder funds.
However, the person said firms did sometimes share fee revenue with distributors funnelling in clients through separately managed accounts.
Carlyle, CVC and EQT all declined to comment.