Private market firms vary in how well
they identify and manage conflicts of interest, according to a
Financial Conduct Authority (FCA) review.
Private markets refer to investments
in assets, companies, or debt not listed or traded on public
exchanges. They've grown significantly in recent years, and the
UK is a leading international centre. Private markets play an
increasingly important role in providing capital to businesses
and opportunities for returns to investors. Private markets can
give rise to conflicts that differ from those in public markets,
and effective disclosure is important to enable investors to
assess whether their interests are being
protected.
The FCA found examples of good
practice by firms across private equity, private credit and real
estate asset classes. These included strong governance
arrangements, effective oversight and independent challenge. It
also identified some areas where firms could strengthen
governance, oversight and conflicts management arrangements to
support fair investor outcomes.
As private markets grow and business
models become more complex, the FCA found that some firms were
failing to identify conflicts adequately or keep their controls
up to date. Recurring weaknesses were identified in areas
including cross-fund transfers and multi-party transactions,
gifts and entertainment, and information
barriers.
The FCA expects firms to be able to
identify, record, manage and disclose conflicts effectively, and
demonstrate that investors are being treated fairly, particularly
in areas where investors place significant reliance on firms'
judgement, governance and controls.
Michelle Beck, director of wholesale
buy-side at the FCA, said:
"Firms need to ensure their management
of conflicts of interest keeps pace with growth in their size and
complexity. We found good practice across the sector, but
standards varied considerably. We want to encourage confidence in
the UK's private markets. Firms should act on our findings and
identify where they can strengthen
controls."
Although not part of this review, the
FCA is examining governance and conflicts concerns relating to
the use of private credit to fund consumer litigation claims,
including significant risks of harm to investors, consumers and
markets.
Notes to
editors:
-
Conflicts of interest and fair
customer treatment in private markets
-
The review examined how firms
identify, manage, mitigate and disclose conflicts of interest
across private equity, private credit and real estate
markets.
- The report includes examples of both good practice and areas
where firms could strengthen arrangements.
- The review forms part of the FCA's wider supervisory focus on
private markets and investor outcomes.
