New code for pri­vate equi­ty funds

In Brief

On 7 Sep­tem­ber 2011, the Aus­tralian Pri­vate Equi­ty and Ven­ture Cap­i­tal Asso­ci­a­tion (AVCAL) released a new cor­po­rate gov­er­nance code for the pri­vate equi­ty industry.

The Code is based on exist­ing cor­po­rate gov­er­nance guide­lines already used by reg­u­la­tors such as the ASX, and builds on ini­tia­tives by oth­er nation­al indus­try asso­ci­a­tions, respon­si­ble invest­ment advo­ca­cy groups, and pub­lic mar­kets stake­hold­er groups. 

The Code con­tains 7 principles:

Prin­ci­ple 1: Pro­mote and safe­guard the inter­ests of the fund’s investors, recog­nis­ing the diverse nature of those interests.

Prin­ci­ple 2: Embed eth­i­cal, respon­si­ble and rig­or­ous deci­sion-mak­ing by gen­er­al part­ners and port­fo­lio com­pa­ny boards and management.

Prin­ci­ple 3: Pro­mote effec­tive port­fo­lio com­pa­ny board com­po­si­tion and structures.

Prin­ci­ple 4: Respect the inter­ests of stake­hold­ers at both fund and port­fo­lio com­pa­ny levels.

Prin­ci­ple 5: Ensure the integri­ty and util­i­ty of report­ing by port­fo­lio com­pa­nies to gen­er­al part­ners, lim­it­ed part­ners and oth­er stake­hold­ers (pri­vate disclosure).

Prin­ci­ple 6: Be trans­par­ent in deal­ings with oth­er key stake­hold­ers in port­fo­lio com­pa­nies (pub­lic disclosure).

Prin­ci­ple 7: Align finan­cial reward with finan­cial performance.

The Code pro­vides a series of guide­lines, rather than a list of pre­scrip­tive rules. AVCAL mem­bers are oblig­ed to adopt the guide­lines and where a mem­ber has failed to do so it is required to explain why they have not com­plied (the ​“if not, why not” approach). 

It is hoped that the new code will increase trans­paren­cy in the pri­vate equi­ty indus­try, and help to build investor and pub­lic con­fi­dence in the way in which the indus­try works and the returns it guarantees. 

For more infor­ma­tion see AVCAL’s web­site.