Most Private Equity partnerships flunk CFA Ethics Standards
CFA Code of Ethics and Standards of Professional Conduct known as the Code and Standard developed in the 1960’s that says all CFA members each year sign a statement that they adhere to this code.?The code has a number of standards including that to “Place the integrity of the investment profession and the interests of clients above their own personal interests.” [i]?Putting clients first is basic “fiduciary duty”.
Hidden language in private equity contracts breaches fiduciary duty in the following standards.
III A -?Members must act to the benefit of their Clients -?private equity general partners (GPs) have waived their fiduciary responsibility to pension funds and other LPs; Vague and misleading wording allows PE firms to take advantage of their asymmetric position of power vis-à-vis investors and the lack of transparency in their activities. Analyses of limited partnership agreements (LPAs) have also uncovered clauses that specifically allow private equity firms to waive their fiduciary responsibility towards their limited partners — leading to serious conflicts of interest
IIIB??Fair Dealing “The General Partner may take its own interests into account in the exercise of such discretion. The exercise of such discretion may negatively impact the Limited Partners
IIID Performance Presentation - Many GP’s have manipulated the value of companies in their fund’s portfolio; Most refuse to adhere to GIPS
?VI A??Conflicts of Interests, Disclosure - GP’s have waived their fiduciary responsibility to pension funds and other LPs and having conflicts in the secret contracts
VI(B) Priority of Transactions, by allowing general partners to benefit at the expense of limited partnerships.?Again, secret but typical language allows this in these contracts.
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VI C Fee Disclosure - Private equity general partners (GPs) have misallocated PE firm expenses and inappropriately charged them to investors; have failed to share income from portfolio company monitoring fees with their investors, and have collected transaction fees from portfolio companies without registering as broker-dealers as required by law.??Also allowed undisclosed fee arrangements
VII A Conduct of a CFA - CFA charter holders by recommending private equity limited partnerships that violate IIA, IIB, IID, VIA, VIC have cheapened the standards themselves.??
?Many if not all of the limited partnerships purchased by Public Pensions violate CFA standards
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Christopher, thanks for sharing! How are you doing?