Conflicts of interest and fair customer treatment in private markets

This multi-firm review will be of interest to:  

• asset managers  
• alternative investment fund managers (AIFMs) and  
• investment advisers operating in private markets

While the review focused on private equity, private credit and real estate firms, many of the observations may also be relevant to firms operating in other areas of private markets.

The findings may also be of interest to investors, wealth managers, financial advisers, service providers, trade bodies and regulators.

Private markets have grown significantly in recent years, and the UK continues to be a leading centre for private market asset management in Europe. Private markets play an increasingly important role in providing long-term capital to businesses and offering investors opportunities for diversification and returns.

With this expansion, firms have developed increasingly complex business models, launched new investment strategies, entered joint ventures, and grown through acquisitions. A broader range of investors are now able to access private market investment opportunities. These developments can create new conflicts of interest and increase the complexity identifying, managing and disclosing them effectively.

Private markets can give rise to conflicts that differ from those in public markets. Firms often manage multiple funds and strategies, operate across different parts of the capital structure, and exercise significant discretion when making investment decisions. As firms grow and diversify, conflicts can become more numerous and more challenging to manage.

Supporting the UK's position as an international investment hub and fostering growth and innovation are important FCA priorities (PDF)[1]. Effectively managing conflicts supports this by promoting confidence, fairness and trust in private markets. The review was conducted against a backdrop of increasing regulatory and industry focus on governance, transparency and standards across the sector.

Effective management of conflicts of interest is fundamental to delivering fair outcomes for consumers and maintaining confidence in private markets.  

In this report, we highlight examples of good practice and identify areas where firms may need to strengthen their governance, controls and oversight. 

The scope of this review included firms managing funds or providing portfolio management and/or advisory services in the UK involving private equity, private credit and real estate assets.

We assessed whether firms' conflicts of interest frameworks and governance arrangements were sufficiently robust to identify, manage, mitigate and disclose conflicts of interest and whether they supported the fair treatment of investors.

We considered relevant requirements under the FCA Handbook relating to conflicts of interest, governance, systems and controls, and disclosure obligations (SYSC 10; COLL 8.5.7, COBS 2.3A.8R, COBS 11.7 and COBS 11.7A).

We considered actual, potential and perceived conflicts of interest that can arise within private markets. We considered personal conflicts, conflicts of interest that are driven by firms’ business models and operating structures, and those that arise and evolve throughout the investment lifecycle from the origination and allocation of assets through to valuation and exit.  

We conducted the review in 2 phases.

Phase 1 involved sending a questionnaire to a sample of private market firms, with broad coverage across business models, asset classes, ownership structures, delegation models and firm size. We gathered information on their activities, governance arrangements, and how they identify, manage and disclose conflicts of interest.

In phase 2, we conducted on-site visits to a selected group of firms. These meetings tested how firms identified, monitored and managed conflict risks in practice.

We thank participants for their constructive engagement and the quality of responses provided throughout the review.

Conflicts are inherent to private markets asset management and advisory activities and are significantly influenced by firms’ business models, investment structures and ownership arrangements.

Firms should identify conflicts arising from the substance, scale and complexity of their activities, assess the risks they create, and take appropriate steps to avoid, mitigate, or manage them. This requires strong governance, independent oversight and effective challenge, supported by evidence that decisions are being taken fairly and in the interests of investors.  

Many firms demonstrated effective governance, strong conflict identification processes and a clear focus on investor outcomes. However, standards varied considerably. Governance arrangements and controls did not always reflect the level of complexity within business models, investment structures and, therefore, conflict risks. Firms did not always evolve their control frameworks to align with increasing complexity as their business grew. Some firms with more complex business models (and therefore greater inherent conflict risks) did not operate proportionately stronger governance and control frameworks.

Firms with the most effective arrangements embedded policies and controls throughout the investment lifecycle and maintained comprehensive conflict inventories. They reinforced these arrangements by actively involving control functions in both the first and second lines of defence, and undertook independent periodic reviews and provide challenge. Firms also established multi-layered governance arrangements, subjecting material conflicts to appropriate oversight. They set procedures and clearly defined channels for escalating conflicts when predefined thresholds or trigger events were met, including engagement with Limited Partners (LPs) where appropriate.

However, we also found weaknesses. Some firms relied heavily on first-line judgement, used fragmented frameworks, or lacked effective escalation and oversight of transactional conflicts.  

In some cases, governance arrangements and controls had not grown in line with firms’ respective business models, investment structures and conflict risks.

We saw recurring weaknesses and areas of concern relating to:

• Cross-fund transfers and continuation transactions: Firms with stronger frameworks applied enhanced governance, independent challenge, valuation oversight and strong investor engagement. Weaker frameworks relied more heavily on existing governance processes, disclosure or investor consent, with limited evidence of how competing investor interests had been assessed and balanced.
• Gifts and entertainment: Stronger controls existed where firms set clear standards in gifts and entertainment policies, implemented active oversight, kept robust records, and monitored patterns over time. Weaker practice relied on policy thresholds and generic approvals, and there was limited evidence that firms were effectively identifying and managing conflicts or inducement risks.
• Information barriers: Stronger information-barrier controls combined physical, organisational and system-based restrictions with active compliance monitoring and oversight of information sharing. Weaker controls relied more heavily on staff training, judgement and informal safeguards, with limited monitoring to demonstrate that confidential information was being effectively contained.

How firms choose to structure their business and how they are owned determine the level of inherent conflicts risk.  

The firms we reviewed varied in the nature, scale and complexity of their activities. Different asset class exposure, investment strategies and product offerings, as well as corporate ownership structures influence both the volume and complexity of conflicts requiring oversight.  

Some firms operated a limited number of closed-end funds pursuing a single investment strategy. Others managed more complex structures, including multiple fund vintages, continuation and evergreen vehicles, and investments across different parts of an issuer's capital structure. As firms expanded across asset classes, fund structures and investor groups, the range of potential conflicts increased, requiring more sophisticated governance, oversight and control frameworks to identify, assess and manage conflicts of interest effectively.

We also saw firms with very different ownership structures. These influenced the nature and extent of potential conflicts requiring oversight. Some were independent specialist private markets managers or owned by shareholders aligned with senior management. Others formed part of broader financial groups, including banking and insurance organisations.  

More complex business models need stronger controls

These differing structures gave rise to distinct conflict profiles, particularly where firms operated alongside affiliated businesses, shared services or wider group interests. More complex ownership structures required firms to maintain more robust governance, escalation and oversight arrangements across the wider organisation. There is a clear link between the complexity of a firm’s business model and the level of inherent conflicts risk arising across its operations.  

Firms that designed more focused business models chose to avoid many of the conflicts commonly associated with private markets investing. They did so by operating the business within a single asset class, having clear separation between investment strategies, or they did not involve group affiliates in lending and investment activities.  

By contrast, firms choosing more complex models (including those operating across multiple asset classes, strategies or fund structures), or with group affiliated businesses, were exposed to a broader range of potentially significant conflicts requiring enhanced oversight and control. While ownership within banking and insurance groups often introduced additional sources of conflict, these firms frequently benefited from more mature governance frameworks, established conflict-management practices and stronger second-line oversight.

How effective firms' arrangements were therefore depended not only on the complexity of the conflicts they faced, but also on whether governance, control and escalation frameworks had evolved appropriately to identify, assess and manage those risks in a consistent and demonstrable manner.

Some firms adopted a legal-form assessment that characterised their UK-based activities as investment advisory activities, because formal investment decisions were taken by overseas entities. In these cases, UK conflicts frameworks were often more narrowly scoped, focusing primarily on personal conflicts or relying heavily on arrangers operated by overseas entities. While such arrangements may be appropriate, we observed instances where conflicts identification, governance, and oversight arrangements did not fully reflect the substance, scale and complexity of activities undertaken in the UK.  

UK-based staff were frequently involved in significant parts of the investment lifecycle, including activities that could create significant conflicts of interest. In these cases, firms were less able to demonstrate that they had identified, assessed and managed conflicts in a way that reflected the risks that their UK operations created.  

Firms may legitimately adopt different business models, ownership structures and operating arrangements, including models where investment decisions are taken by overseas group entities.

However, we expect firms to design their conflicts framework to identify, assess and manage the conflicts arising from the activities undertaken within their operations and maintain governance and controls commensurate with those risks.

Firms we judged to have the greatest levels of inherent risk were not always the most effective at identifying, assessing and managing those conflicts. We saw some firms with relatively focused business and ownership models using stronger controls than some other firms with greater inherent conflicts. We also observed instances where firms' conflicts frameworks reflected the legal form of their activities more closely than the substance of those activities. In particular, some firms’ UK activities were structured to be advisory-only but involve key lifecycle activities and attendant conflicts. We consider good practice to be that such firms operate frameworks that reflect the substance of their activity and the conflicts arising from them, not merely their legal form.

Firms must be able to identify conflicts promptly and comprehensively to manage these risks well. Unidentified conflicts can lead to poor investor outcomes and damage firms' reputations.

Firms with the strongest arrangements embedded conflict identification throughout their governance framework. Responsibility for identifying and escalating conflicts was clearly understood across all three lines of defence, and this was supported by training, defined escalation routes and clear materiality thresholds.  

These firms provided bespoke training to staff on conflicts identification and the firm’s arrangements for reporting identified conflicts. They also identified conflicts at both business-model and transaction levels. They understood the conflicts inherent in their business model, ownership structure and operating arrangements, and so were better able to identify and manage conflicts that arose in particular transactions and circumstances.

Firms with weaker approaches often relied heavily on a single line of defence or on individuals to identify and escalate conflicts with no clearly defined process. Some firms identified only the most common conflicts associated with private markets investing and had not adequately considered those arising from their particular business model, ownership structure, investment strategy or product offering.  

Firms with stronger arrangements viewed conflicts identification as an ongoing process throughout the investment lifecycle rather than a one-off assessment. For transaction-level conflicts, they ran multiple checks as soon as a transaction was first proposed to spot conflicts at the earliest opportunity. Checks were wide-ranging, covering existing investments across all asset classes (even where there were information barriers) and a wide range of potential conflicts involving staff members. They also established clear triggers for reassessment throughout due diligence, deal structuring, allocation, valuation and exit processes.

These reviews were particularly important where firms exercised discretion. Weaker firms lacked clearly defined review points and were overly reliant on individuals to recognise and escalate conflicts as they arose.

A further differentiator between stronger and weaker firms was the extent to which conflict identification was supported by systems, data and management information. Best-practice firms had integrated systems that could capture transaction information, enterprise relationships and personal conflicts within a single framework. These systems supported automated conflict checks, governance reporting and ongoing monitoring.  

By contrast, fragmented systems often required manual workarounds, produced less effective management information and increased the risk of omission or error.

We expect firms to ensure that their conflict identification processes are proportionate to the nature, scale and complexity of their activities and evolve as their business models, structures and conflict risks change. Firms should be able to demonstrate that their arrangements are reasonably designed to identify material conflicts on a timely basis and support consistent decision-making throughout the investment lifecycle.

Documentation plays an important role in managing conflicts effectively, by establishing a common understanding of the firm’s approach, promoting consistent application of controls and providing evidence to support oversight and challenge.

All firms in our review maintained a conflicts register. Most had a comprehensive conflicts framework document explaining the various approaches used to identify and manage conflicts, including references to conflicts-related policies and procedures, monitoring undertaken by second-line functions, and oversight performed by governance committees and forums.  

This helped the firm’s senior management and staff articulate a coherent and consistent approach to meeting SYSC 10 requirements to identify, record, manage and disclose conflicts.  

Some firms had more comprehensive policy and procedure documents covering specific conflicts areas such as investment opportunity allocation, transfer of investment positions between investment pools, the handling of cases where separate vehicles hold the debt and equity of the same company, personal account dealing, and gifts and hospitality. These were set out in a consistent format with clear escalation triggers, where possible.  

The documents assigned responsibilities for identifying conflicts and operating mitigating controls to people with roles in the firms’ three lines of defence. They provided the details of management information to be generated by specified teams, and how these were shared with committees and forums to facilitate informed oversight.  

Weaker frameworks were not always well aligned with their underlying policies and procedures, resulting in gaps, ambiguity and inconsistencies. In these cases, it appeared that the documentation was created primarily to meet a regulatory expectation rather than to support the comprehensive identification and management of conflicts in practice.

Some firms had not updated documentation to reflect changes in business models, product offerings, ownership structures or conflict risks. This made them less useful as a tool for identifying and managing conflicts.  

Some firms, such as those that formed part of diversified banking or insurance groups, had repurposed policy and procedure documents created elsewhere in the group for use in their private markets business. These sometimes worked well. However, not all documents had been tailored sufficiently to reflect the specific risks and activities associated with private markets.    

Using software, training and keeping records

For individual conflict events, we saw good practice includes retaining document files to evidence actions and decisions (including justifications). These covered items such as allocation memoranda, valuations materials, personal account dealing approvals, gifts and hospitality approvals, material interest assessments and records of governance discussions.  

There were high-quality minutes taken of committee and forum meetings where decisions were taken, and the documentation showed how the firm complied with relevant requirements and standards in policy and procedures documents.  

Some firms used proprietary or third-party software to track conflicts and make a full audit trail of how each conflict was handled. These allowed second-line functions, and forum and committee members to review conflicts either after the event or in, some cases, real time.  

Firms with weaker fragmented arrangements used different systems for handling particular conflicts, or manual records combined with spreadsheets. These firms typically reviewed how well their conflicts were managed less frequently and in less depth.  

We recognised, however, that systems’ sophistication was often relative to the size, nature and complexity of a firm’s activities. Some smaller firms with fewer transactions or simpler business models had decided that they did not currently need a fully integrated conflicts management system.  

Almost all firms provided some level of staff training on conflicts management practices. Better training examples aimed to build general awareness of how conflicts may arise and the firm’s procedures for reporting them. Firms trained new employees soon after they joined, with annual refresher training thereafter. They maintained records of training completed, and followed up with anyone who hadn’t completed it.

Some firms built practical case study examples into their training that were relevant to the firm’s business model. One firm built multiple training modules, each one tailored for specific groups of employees to reflect conflicts they were particularly exposed to. Some firms held interactive in-person sessions with staff, led by legal and compliance subject matter experts. Firms with weaker approaches had no specific conflicts training programme or provided generic, computer-based modular training that was not tailored to staff roles and was largely limited to personal conflicts.  

We expect firms to document, communicate and embed their approach to managing conflicts throughout the organisation. They should maintain proportionate policies, procedures, training and record-keeping arrangements with activities kept under review as business models, structures and risks evolve. Sufficient records should be maintained to show compliance with policies, procedures and regulatory obligations.

Firms need effective and timely governance and oversight to manage conflicts consistently and in accordance with its framework.  

Those with the strongest oversight arrangements had clearly defined governance structures, including a committee with clear responsibilities for reviewing the effectiveness of their conflicts arrangements.  

These committees typically comprised representatives from all key functions in both first and second line. If a committee delegated work to other forums (i.e., sub-committees or working groups), reporting arrangements ensured that oversight committees retained visibility of the matters being considered, decisions taken and issues escalated, in accordance with escalation triggers the committee had pre-set.    

Firms with strong frameworks enabled real time referrals to named committees or forums as part of their standard processes for handling key conflicts, such as new deal allocation and transfers of investment positions between different investor pools. Meetings of committees or forums would take place ad hoc to review and approve decisions on specific events if they weren’t standard practice or triggered materiality thresholds. Stakeholders reviewed relevant documentation provided to the meeting to ensure their approval, if granted, was provided on a fully informed basis.        

If a firm’s UK operations were part of an international group, some had better frameworks that operated conflicts governance at both UK and group levels. This meant that conflicts that were material in the context of UK operations were reviewed by UK-based senior management, while conflicts arising at group level would be spotted and handled by the group’s governance.    

Second-line compliance teams were sometimes extensively involved in running conflicts identification and handling processes for new deals, much like an investment bank’s control room. They were also often involved at other key stages of a deal’s lifecycle (such as decisions involving due diligence, fair allocation and position valuations). This provided independent input to decision making at key stages but could reduce the compliance function's ability to provide independent review of those decisions after the event.  

Firms with strong arrangements recognised this and kept teams involved in operating compliance processes (’control room’ compliance staff) sufficiently separate from those responsible for providing independent second-line assurance (e.g., the monitoring teams).  

Many firms consulted Limited Partner Advisory Committees (LPACs), or equivalent investor bodies, at various stages of the investment lifecycle. The extent of their engagement and the transparency of disclosures varied. Some firms engaged with them regularly and saw them as central to their management of conflicts. Others consulted LPACs only when legally obliged to, and provided limited information.  

LPACs weren’t always effective as a conflict-management tool. Typically, only the largest limited partners were permanently represented on LPACs, with smaller investors having less direct input. Some firms also exercised discretion in deciding whether to consult LPACs which could result in inconsistent outcomes.

As firms develop new fund structures that do not operate LPACs or an equivalent, investor consultation might become a less effective tool for handling conflicts. Informed consent from investor representatives can be a valuable means of handling conflicts but firms should be aware of any limitations that might apply and should not rely on consultation with a subset of specific investors as the primary mechanism to manage material conflicts. Investor consultation should operate alongside strong governance, oversight and conflicts-management arrangements.

Only 52% of firms in phase 1 said that internal audit had a role in reviewing the conflicts framework and its application. Firms should therefore carefully consider whether their oversight arrangements are sufficiently effective to support and oversee the consistent delivery of high standards of conflicts management.

Personal investments are a common source of conflicts of interest risk in asset management. Employees may have financial interests which overlap, compete or otherwise interact with the activities undertaken on behalf of funds, investors or clients. This can create actual, potential or perceived conflicts, particularly where individuals are involved in investment decisions or have access to non-public information. All firms provided some level of staff training on conflicts management practices.

These risks are not unique to private markets, but in this sector it’s more likely that certain types of personal investment will arise. These may include investments in portfolio companies or their stakeholders (for example, suppliers, customers and landlords), co-investment opportunities, and interests associated with sponsors, counterparties and other market participants.

COBS 11.7A[2] (for MiFID business) and COBS 11.7[3] (for non-MiFID business) state that firms must establish, implement and maintain adequate arrangements that prevent staff (including directors, partners and appointed representatives) from entering into personal transactions when certain criteria are met.  

All firms operated controls around personal account dealing.  Firms required approval to be sought and provided before trading could take place. Most firms operated continued oversight through regular reviews, a requirement for broker account declarations, and post-trade monitoring. 

Conflicts can arise during deal sourcing. These include biased referrals, hidden incentives, related party transactions, and opportunities where a firm or its affiliates have an interest on both sides of a transaction. If a firm doesn’t identify and managed them, these conflicts can influence which opportunities it pursues and how it assesses them.  

Early disclosure and independent screening can manage or prevent conflicted deals from entering the pipeline. Firms with stronger arrangements embedded conflicts identification into origination and approval processes. Potential conflicts were assessed at the earliest stages of deal origination through conflict screening, active deal lists, non-disclosure agreement (NDA) stage reviews. One firm checked for overlapping mandates, competing investor interests, related-party relationships and information-sharing risks before opportunities progressed. Legal and Compliance were often engaged before NDAs were signed. This enabled potential conflicts to be identified, challenged and mitigated before opportunities progressed further.  

Early-stage reviews helped firms determine whether transactions should proceed before committing significant resources and whether additional controls were required. Weaker practice involved formal conflict assessments not being consistently undertaken before NDAs were signed, resulting in greater reliance on investment professionals’ judgement at the outset.

Clear roles and responsibilities

Firms with stronger frameworks had embedded conflicts management within formal decision-making and oversight processes. They reviewed opportunities through oversight forums such as pipeline reviews, stock meetings, steering committees and investment screening committees.  

They set clear roles for their second-line functions throughout the process, including the application of consistent thresholds and different escalation routes depending on where conflicts arose. These were supported by eligibility screening, conflict-clearance processes and documented rationale and challenge.  

Together these measures helped ensure that investment decisions aligned with investors’ interests and were not unduly influenced by commercial, fundraising or capital deployment pressures.  

Weaker arrangements engaged legal and compliance functions later in the process, either following referrals from the first line or through retrospective reviews once transactions had progressed to the later stages of decision-making. 

Unfair allocation decisions across different funds, mandates and investment vehicles are likely to disadvantage certain investors. Firms must balance the competing interests of different investors to demonstrate that they have allocated opportunities fairly and consistently.

Firms typically considered allocation as part of the investment decision-making process, or as a subsequent step once an investment was deemed suitable. Those with stronger approaches had clearly documented allocation frameworks supported by predefined allocation criteria. They used pro-rata methodologies for oversubscribed opportunities and supplemented these formulaic approaches with documented rationale explaining how they had considered investor fairness in the specific circumstances of the transaction.  

They typically assessed allocation decisions against factors such as investment strategy, mandate suitability, portfolio construction and investor objectives. Governance committees also provided oversight when conflicts arose and exceptions were made to policy. Several firms maintained dedicated allocation committees, memoranda and periodic reviews of outcomes giving them greater assurance that competing investor interests had been balanced appropriately.  

In weaker approaches, investment teams exercised broad discretion when allocating opportunities between competing mandates. They had allocation policies but less prescriptive governance arrangements. Allocation decisions relied on judgement across multiple factors rather than a clearly defined methodology. This made it harder for allocation outcomes to be independently and systematically challenged and consistently applied.

Connected or multi-party transactions involve multiple funds, investor groups or affiliated parties whose interests may not align. This creates conflict risks where decisions on pricing, valuation, allocation, timing or terms could advantage one party at the expense of another.  

Conflicts in valuations can be particularly acute where firms have discretion in the valuation of fund assets. In these circumstances, firms may have an incentive to bias valuations for their own benefit at the expense of investors.  

These risks can arise in situations such as fund-to-fund transactions, continuation vehicles, warehousing arrangements, related-party and affiliated transactions, secondary transactions and fund wind-downs.  

The stronger approaches we saw recognised the risks posed by these transactions and reflected them explicitly within their conflict frameworks, governance arrangements and escalation processes. They enhanced governance for related-party, affiliated, cross-fund and continuation transactions were typically subject to enhanced governance, conflict-clearance processes and additional oversight beyond standard business-as-usual approvals.  

They used separate decision-making teams and processes to represent the potentially competing interests of different investors involved in a transaction. For example, where different investors were effectively on both sides of a transaction, firms commissioned separate independent valuations from different agents to support transaction pricing.  

Stronger firms also undertook compliance monitoring and thematic reviews to assess whether controls were operating effectively in practice. These reviews also considered whether conflicts arising from broader group structures were being appropriately managed. They supplemented these arrangements with LPAC engagement, either through consent or by providing timely disclosure where appropriate.  

In end-of-fund situations, stronger firms specifically considered conflicts arising from extensions, liquidations, secondary transactions and distressed scenarios within formal governance frameworks. These situations were subject to additional review, challenge and escalation to Realisation Committees, LPACs or other governance bodies.  

By contrast, weak arrangements relied heavily on existing practices to oversee conflicts and used standard fund-specific thresholds for engagement with LPs or LPACs. There was often only limited escalation where transactions fell within established risk appetites or policy thresholds. As a result, these firms relied primarily on first-line judgement and management approvals, and fairness considerations were often discussed only at a high level. In one case, a firm told us that an affiliated party had sought to circumvent the firm’s internal processes.

Firms with poor approaches were also less able to evidence how they had balanced competing investor interests, how they had assessed transaction pricing fairly, or show that potential conflicts had not influenced decision-making.  

We also observed examples where the same individuals remained involved on both sides of transactions and where committee memberships overlapped. Some firms cited the use of third-party valuations as the primary mitigating control where decision-making responsibilities were not clearly separated. Although firms identified this as a mitigating measure, we saw limited evidence that it would manage the conflict effectively in practice. 

Poor alignment of interests between managers and investors can create incentives that increase the risk of poor outcomes, even in the absence of a direct conflict.  

Stronger firms’ arrangements showed clear alignment between manager and investor interests, typically supported through meaningful General Partner (‘GP’) commitments invested alongside clients’ money. These firms also operated governance arrangements that sought to identify and manage situations where fees, expenses, fundraising activity, capital deployment pressures and other commercial incentives could influence decision-making.  

They supplemented this with transaction reviews, governance committee scrutiny and enhanced transparency and oversight mechanisms, including LPAC engagement. This helped provide greater assurance that investor interests were considered when making decisions that could otherwise be influenced by commercial objectives.

Many firms demonstrated broadly aligned structures, with governance over fees, expenses, allocations and investor reporting. Weaker firms provided less evidence of how they sought to align GP interests with those of investors. In some cases, investor alignment was asserted rather than demonstrated through governance, oversight and monitoring.

Most-favoured-nation (MFN) clauses and side letters allow eligible investors to access equivalent rights to those available to other comparable investors. They can help reduce the risk that certain investors receive preferential treatment to the disadvantage of others.  

Stronger approaches treated MFNs and side letters as part of their wider conflicts and investor-fairness frameworks rather than merely contractual arrangements. They applied legal and compliance oversight, and maintained structured governance around preferential rights. Eligible investors were given opportunities to harmonise terms through MFNs where appropriate.  

These firms also considered the implications of preferential rights for investor fairness and used disclosure, LPAC engagement and escalation processes where appropriate.

By contrast, weaker practices had less developed governance arrangements for the provision and oversight of MFNs and side letters across products or investor groups.  

Where preferential rights were granted, these firms relied more heavily on fund-document disclosure and did not consistently demonstrate that they had systematically assessed their cumulative impact on other investors.

Poor disclosure of conflicts, or potential conflicts, can leave investors unable to assess whether their interests are being fairly protected. Timely and transparent disclosure is essential to preserve investor trust and support informed decision-making.  

The firms we saw with stronger arrangements treated disclosure as a supplementary control rather than a substitute for conflict management. They prioritised avoiding conflicts or if not possible, taking steps to mitigate and manage them before considering disclosure. Disclosure was often proactive and timely, and they engaged investors and LPACs early enough to provide meaningful challenge and influence outcomes.

They included clear escalation routes beyond conflict committees to LPACs, and reported transparently on conflicted transactions, with regular investor engagement and ad hoc communications where required. Some firms were willing to exceed minimum contractual disclosure obligations where they considered that perceived conflict risks were high.

The weaker frameworks we saw relied on disclosure requirements in existing fund documentation as part of their approach to managing conflicts. They did not always demonstrate robust underlying governance or independent challenge in the oversight of conflicts. LPAC engagement was often ad hoc, inconsistent or triggered only where legally required. Escalation thresholds were unclear, and there was limited evidence that investor challenge affected outcomes.  

Firms with less effective arrangements lacked systematic approaches for determining when to make disclosures or relied on quarterly reporting cycles rather than timely event-driven communication. There was also limited evidence that disclosures were delivered early enough to influence decision-making.

Throughout the investment lifecycle, we expect firms to maintain effective arrangements to identify, record, manage and monitor conflicts of interest. The specific controls required will vary by business model, product and activity, but firms should be able to demonstrate that they identify conflicts early, subject them to appropriate oversight and challenge, and that their decisions balance competing investor interests.

Firms should demonstrate this by:

• Identifying and assessing conflicts early enough that they can influence decision-making, rather than relying on retrospective review or disclosure after the event.
• Maintaining governance arrangements that provide effective oversight, escalation and independent challenge, particularly where competing commercial and investor interests arise.
• Evidencing how they have considered investor fairness when making conflicted decisions, including where interests differ between funds, investors, products or affiliated parties.
• Evolving their conflict management frameworks, governance arrangements and monitoring in line with the complexity of their business, products and transaction activity.
• Treating disclosure as a supplementary control, rather than a substitute for robust identification, mitigation and management of conflicts.