Private Equity Ethics
Reevaluating Your Private Equity Firm’s Ethics Policy
With an administration in office that seems keen to crack down on private equity and hedge funds and such high-profile alternative investment scandals as Bernard Madoff and the New York placement agent investigation, private equity firms may do well to reexamine (or create) an ethics policy. It seems that greater scrutiny toward the industry is less a question of whether it will happen than it is when will it occur?
Private equity has enjoyed considerable freedom until recently. Larry Beaupre, who represented private equity firm Proskauer Rose LLP at an online ethics seminar, puts it “The private equity industry, in terms of regulatory scrutiny and media scrutiny, has up to this point led a fairly charmed life.” However this may be coming to an end and Mr. Beaupre suggests a strong ethics code, “that charmed life is under threat. Now is the time to get a policy in place, and learn to live by it so when that scrutiny comes, you’re ready for it.”
Panelists for the ethics seminar noted the significance of having a policy on placement agents, in light of the recent probe into how private equity funds obtain funding through such intermediaries. From the WSJ:
General Partner Frank Angella of Grove Street Advisors LLC said his firm is reviewing its ethics policy and may well begin asking more questions of its general partners about their use of placement agents. “We focus on conflicts of interest and financial conflicts, but placement agents [have] not historically been something we looked at,” Angella said.
Firms were advised to reevaluate their use of placement agents now, rather than waiting for regulations. To do this, private equity firms are advised to create a diligence file that explains how and when they met the agent, what led them to select the agent and any expenses incurred with a particular fund. Although the placement agent scandal originated in New York, other states are following suit in drafting tougher rules for the use of intermediaries and private equity firms should be aware of their state’s policy and required disclosure. Updating your ethics policy and staying current with new regulations are key steps in keeping pace with the changing industry.
Tags: Private equity ethics, private equity ethics code, private equity ethical, private equity pension funds, private equity placement agents, private equity tips