Who Should Make a Decision to Exit an Investment?

Explanation

Since the decision to exit is a judgment call, it is important that the decision-making process involves GP in the same way as it is the original investment. Executive experience is needed to evaluate the risks and rewards of the decision. If co-investors from the fund are involved, this may require an agreement outside of GP and the fund before an exit is initiated.

The exit decision also results in a financial transaction in which funds are moved between the parties. Consequently, an exit, like an investment, falls within the scope of the anti-money laundering rules.

Recommendation

GP should establish a process for deciding whether and how to dispose of an investment. Wherever possible, this process should mirror the process followed in making an investment decision and any proposed disposal should be subject to equally rigorous scrutiny. The GP must follow anti-money laundering procedures to verify the source of funds received in the sale process.