Conflict of Interest

Allocator relevance: A core diligence and governance risk that impacts allocation fairness, transparency, and institutional trust.

Expanded Definition

Conflicts can be structural (cross-fund allocations, affiliated service providers), economic (fee arrangements, rebates), or relational (related parties, shared control). Conflicts are not inherently misconduct; the risk comes from unclear disclosure, weak controls, or decision-making that favors one party at another’s expense.

For allocators, conflict management is a maturity signal: strong managers identify conflicts early, disclose them clearly, and follow documented resolution pathways.

How It Works in Practice

Conflicts are disclosed in LPAs, PPMs, side letters, and compliance policies. LPAC processes and internal committees may review conflicts and approve exceptions. For allocators, ongoing monitoring matters because conflicts can emerge after fundraising through new products, affiliates, or personnel changes.

Decision Authority and Governance

Effective governance defines who can approve conflicts, how disclosures are documented, and how allocation decisions are audited. Conflict governance is most critical when incentives are high—during hot deals, constrained allocations, or distressed workouts.

Common Misconceptions

• Conflicts always imply wrongdoing.
• Disclosure alone eliminates conflict risk.
• Conflict policies are only relevant for large institutions.

Key Takeaways

• Conflict risk is about control and incentives, not optics.
• Governance processes determine real protection.
• LPAC and transparency are common mitigants.