There are a number of issues that affect GP when it holds listed (quoted) investments. Dealing in such investments will often be subject to additional regulation (such as prohibitions on insider dealing and market abuse). The GP may also need to consider the impact on the market of its dealings in the portfolio company’s securities.
Listed Security: Stock in a publicly-traded company that is traded on a particular stock exchange. For example, companies that trade on the NYSE are said to be listed securities for that exchange. Listed securities must conform to each exchange's listing requirements, which usually mandate having a certain market capitalization, number of shareholders, and/or revenue. Listing requirements exist to enforce stability on an exchange as much as possible.
In many jurisdictions it is illegal to deal in securities issued
by listed companies when in possession of unpublished price-sensitive information relating to that company’s business. Where a GP has maintained a close relationship with a portfolio company after a flotation there are circumstances where the GP may receive such information. This may prevent the GP from selling an investment until that information is public.
Market rules may also prescribe certain periods in which the portfolio company directors may not deal in investments. These rules may also be relevant where an employee of the GP remains a director following a flotation. The risk of the GP committing an insider dealing offence is increased where the GP maintains a presence on the portfolio company board.
In many jurisdictions insider dealing is a criminal offence, punishable by imprisonment and substantial fines. Insider dealing may also allow anyone who has suffered a loss as a result of the GP’s conduct to recover any loss that they have suffered from the GP.
The GP should adopt appropriate policies on the management of listed securities, including considering whether it is appropriate to retain a seat on the board.
The GP must ensure that it does not breach prohibitions on insider dealing and market abuse when managing listed investments. Careful consideration should also be undertaken in all reporting and communication to the fund’s LPs to not disclose any price sensitive information that is not available to other market participants.
Where the GP retains a relationship with a portfolio company whose securities are listed, the GP should ensure that it does not utilise any confidential information it acquires to determine or influence its disposal policy, unless that information is available to all of the portfolio company’s shareholders.
GP should recognise and observe any applicable guidance and requirements concerning responsible investment management which are relevant to the listed securities markets in which GP operates.