Cross-firm dialogue key conflict resolution

Compliance officers should engage teams across a firm to mitigate conflicts of interest

Compliance officers should interact regularly with colleagues in other teams to mitigate conflicts of interest, according to industry sources.

Almost two-thirds of delegates polled at Private Equity International’s Private Fund Compliance Forum in New York on Tuesday said their chief compliance officer is primarily responsible for managing conflicts. This compared with 17 percent who said it was the job of the management committee and 11 percent the conflicts committee.

One US-based large-cap general partner said its firm’s compliance and investment teams meets weekly to discuss deals in the pipeline and identify any potential conflicts with them.

“Being involved at the business level is important in training our colleagues [in other parts of the firm] to spot conflicts,” the GP said.

Collaboration with the investor relations manager helps address investor concerns around conflicts of interest, a second panelist from a mid-sized firm said.

“LPs are savvy these days and ask about these issues all the time. So we involve the IR team to show the rest of the firm what are the important issues to LPs and respond to an LP request in a particular way,” the panelist said.

Establishing a Limited Partner Advisory Committee can also help resolve conflict concerns among LPs. LPACs generally include a small group of select LPs who represent the entire LP base and interact directly with the GP.

“We have an LPAC that convenes at our annual meeting every year,” the large-cap GP said. “And probably the thing [around conflicts of interest] that might come up is disclosure around a particular co-investment.”

Even if the LPAC itself only meets formally once a year, it’s important to have consistent dialogue with LPs around conflicts of interest. Half of delegates said their firm engages the LPAC on an ad hoc basis.