“The success of any private equity and venture capital initiative depends on the establishment of a good relationship between the investors in the initiative and those establishing and managing it.” So opens the summary to the EVCA draft consultation paper on private equity good practice launched this month.
The paper offers guidance on some of the issues that arise during the lifecycle of a private equity or venture capital initiative, taking account of common European market practice and corporate governance wherever possible. It lays out governing principles in the general partner’s relationship with the limited partner (investors), “which should be considered and observed by EVCA members and specifically, general partners in Europe,” according to the association.
To illustrate their application, these governing principles are then applied to examples of business practice through whole industry cycle from fund establishment, to management, exit and distribution. The situations are explained and a recommendation is provided for each practice.
Only a taster of the paper was available as IPE went to press, listing the principles below. There is little likely to cause contention in this glimpse, but its existence is proof of the attempts the industry is making to create a responsible and professional image.
Max Burger-Calderon, EVCA chairman and executive director at Apax Partners says he thinks this initiative is the most important issue on which the association is working at the moment: “European private equity and venture capital is a maturing and professionally operated industry, but we are living in an age of financial uncertainty… The wide adoption of these principles will contribute to the higher aim of harmonising business practice in Europe,” he says.

Kim Hunter
The principles are:
o Law:
A fund operator should ensure legal requirements are met in the jurisdiction of establishment of the fund, and in each jurisdiction in which it operates and raises finance.

o Contract:
A fund operator should ensure the terms and conditions specified in the contracts between itself and its investors are met.

o Integrity:
A fund operator should manage its business with integrity.

o Skill, care & diligence:
A fund operator should manage the fund with due skill, care and diligence.

o Adequacy of resources:
A fund operator should ensure an adequate level of financial and operational resources for the management of the fund.

o Investor interests:
A fund operator should pay due regard to the interests of investors in the fund as a group.

o Transparency:
A fund operator should pay due regard to the information needs of investors in the fund, and communicate adequate information to them in a way which is clear, fair and not misleading.

o Conflict of interests:
A fund operator should seek to manage conflicts of interests fairly, both between itself and investors in the fund and between different funds and different investors and groups of investors.

o Investor assets:
A fund operator should arrange adequate protection for investors’ assets.

Topics