Private Equity Compliance

CHAPTER 5Conflicts of Interest

5.1 INTRODUCTION TO CONFLICTS OF INTEREST

Conflicts of interest in various forms are common among all investment management arrangements and private equity presents a number of unique conflicts of interest. As an example, in Chapter 4 we outlined several of the potential conflicts inherent in the private equity valuation process. In this chapter we will expand this discussion to focus on other potential conflicts throughout the private equity fund management process.

5.2 DEFINING A CONFLICT OF INTEREST

In a private equity context, by virtue of their position general partners (GPs) may find themselves in a number of situations that may present a potential conflict of interest, or simply conflicts. These conflicts are rooted in their obligations to manage funds in the best interest of investors while at the same time pursuing other activities that may conflict with this obligation. For our purposes, we can define a potential conflict of interest for GPs as a situation where a dual obligation exists between their duties to investors and other activities that they, or their employees, are pursuing.

5.3 FUND FORMATION CONFLICT-OF-INTEREST DISCLOSURES

The first place to start when considering a private equity fund's potential conflicts is with the fund's offering documents. In many cases the fund formation documents will disclose that certain conflicts may occur. As we work through each of the common conflict disclosure topics that the fund formation ...