New code for private equity funds
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.