Conflicts of Interest Between Funds
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Conflicts of Interest Between Funds

In this article we will try to understand what should a GP do when a conflict of interest arises between funds that it manages.
Conflicts of Interest Between Funds

Explanation

Conflicts of interest can arise where a GP manages multiple funds. For example, one fund managed by a GP may seek to acquire an investment being disposed of by another, or an opportunity for follow-on investment in a portfolio company
in which more than one fund has invested may arise that cannot be exploited by both funds.

Conflicts can also arise when multiple funds hold investments in a portfolio company and a disposal opportunity arises. It is possible that it may not be in the best interests of all funds to dispose of the investment at that point in time (e.g. where one invested on terms that mean disposal would crystallise a loss to that fund, while another fund would realise a profit).

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Recommendation

The GP should discuss and seek to resolve all conflicts of interest with the LPACs of both funds before making any decision about the best course of action to take. The GP should establish procedures to promptly identify, disclose and manage conflicts of interest. These should be set out in the respective fund documents.

There may also be regulatory requirements dealing with conflicts of interest (for example, the AIFMD). Fund managers should be aware of applicable requirements and should comply with them.



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