In November, the European Private Equity and Venture Capital Association (EVCA) published updated European professional standards for the private equity and venture capital industry. For the first time, the standards have been jointly drafted by both general and limited partner representatives.
The Handbook aims to provide a single source of guidance for the industry and emphasizes the ethical and professional standards, thus counteracting reputational concerns of the industry.
The core of the new Handbook consists of the EVCA Code of Conduct which is mandatory for EVCA members – together with brief comments on the Code, as well as a fairly detailed and pragmatic “questions and answers” section. The Code of Conduct lists the following general principles:
1. Act with integrity
2. Keep your promises
3. Disclose conflicts of interest
4. Act in fairness
5. Maintain confidentiality
6. Do no harm to the industry.
The lengthy Q&A section includes 90 questions which are organized based on different stages of the fund and the fund managers’ different activities, e.g. “Fund formation”, “Fundraising”, “Management of an Investment” and “Winding up of a Fund”. This section addresses questions such as the following: Should different LPs be offered different terms? How should the GP incentivise its staff? What responsibilities arise with respect to marketing presentations? What information should be provided about the track record of the GP? What due diligence should be done when evaluating an investment and to what level of detail? Through what mechanisms should the GP seek to ensure that it is able, on behalf of the Fund, to influence a Portfolio Company? The Q&A also covers inter alia matters relating to responsible investing and environmental factors, fundraising costs, warranties and indemnities given in connection with an exit, other shareholders in a portfolio company, transactions between funds managed by the same GP, remuneration of portfolio company management and co-investments by the GP and its staff.
The new Code of Conduct merges the EVCA Governing Principles and the EVCA Corporate Governance Guidelines which are thus replaced in their entirety by the new Handbook. The Code of Conduct for Placement Agents is included as separate appendix.
Alongside with the Code of Conduct sections, the Handbook also features the IPEV Valuation Guidelines (edition October 2012) and the IPEV Investor Reporting Guidelines (edition August 2010).
Irrespective of the self-regulation in the form of the Handbook, it is necessary to bear in mind the Alternative Investment Fund Managers Directive which will impose further regulation for certain situations and issues that are also covered by the Handbook.