Conflict of Interest

Definition

Conflicts of interest occur when a GP’s decisions could benefit the manager at the expense of LPs, such as allocating deals across funds, charging fees through portfolio companies, cross-transactions, or using affiliated service providers. Conflicts are not unusual in private markets; the issue is whether they are identified, disclosed, and governed. Allocator Context Institutional allocators expect clear conflict policies and transparent governance. They evaluate conflicts through fund documents, LPAC governance, and operational controls. Family offices may rely more on trust, but major conflicts still create reputational and risk concerns. Decision Authority Conflict disclosures and approvals often involve LPAC consultation and legal review. Significant conflicts can require explicit consents and can influence investment committee comfort in approving commitments. Why It Matters for Fundraising Conflicts are a diligence focal point because they signal governance maturity. Managers who proactively disclose and govern conflicts reduce investor risk perception and improve approval probability. Key Takeaways Conflicts are common; unmanaged conflicts are unacceptable Disclosure and governance determine investor comfort LPAC and fund terms are primary controls Strong governance accelerates fundraising