Insights, a podcast with Professor Fabian Ajogwu, SAN

In protecting investors interest, it is crucial to understand the role and duties of fiduciaries in private equity (PE), usually the role and duties of a fiduciary is defined in statutes or by courts and varies from jurisdiction to jurisdiction. Fiduciary duties aim to protect PE investors and beneficiaries from grossly negligent, reckless and intentionally harmful acts which might occur in the day-to-day running of the company. Fiduciary roles have been expanded to include any person who has power and discretion over another's interests, coupled with an express or implied undertaking to act exclusively in the other's service. Managers of investment portfolios may be subject to fiduciary law's strict requirements in various capacities such as trustees, agents, financial advisers, or corporate directors?

Conflict of interest refers to a situation in which a person is in a position to derive personal benefits from actions taken in their official capacity. Where there are competing interests, it can make it difficult for a party to fulfil their

Several potential conflicts of interest may arise in the normal course of its business and operations, either on a one-off basis or potentially on a more recurring basis. Material conflicts arise in private equity fund management between the responsibilities the fund manager has to itself (including its owners/staff), the investors in the separate funds/share classes it manages and the companies owned by the funds.

Minority interests, also known as minority investment, refer to the non-controlling share in a company held by an investor or another company. It is an ownership stake of less than 50% in a company and does not otherwise have a controlling interest. This position held gives the investor no influence or an insignificant amount of influence on how the company is run. Ownership in a private equity arrangement can either be minority passive interest, minority active interest or majority stake.

Minority passive interest is when a firm holds less than 20% interest in another firm. It must classify its interest as either trading securities or available-for-sale securities; this means that the firm does not have material influence on the company in which it has this minority interest.  

Stakeholders & The Lack of Adequate Disclosure

Stakeholders are not party to the negotiations in private equity agreements and buy-outs. In the case of quoted companies, there are strict rules regarding confidentiality of price-sensitive information that preclude wider involvement of others who

Stakeholders in a Private Equity arrangement can be protected by

Fiduciary duties might be said to grow out of a variety of relationships involving one party's exercise of some measure of control. Fiduciary duties, therefore, are structural in the sense that they arrive from the structure of the parties' relationship rather than from the parties' individual attributes.

The future of private equity, particularly in emerging markets will need to pay close attention to recent trends globally. In Sub-Saharan Africa, the current trends illustrate that many economies are only just starting to recover from a protracted period of slow growth and policy uncertainty.

This episode is about Equity Financing Versus Debt Financing

It is said that Equity Investors participate in "Entrepreneurial Risk" because unlike debt financing, no collateral is provided by the investee company and instead the equity investor solely relies on the success of the firm and is locked into a for-better-for-worse relationship. 

Although many have viewed the model of private equity as a new phenomenon, the methods used (venture capital, growth capital, leveraged buyouts amongst others) have been in existence for years, with some scholars regarding these methods to be as old as capitalism. Nonetheless, the attractiveness of private equity has been primarily driven by varying factors across a wide range of sectors.

The potential benefits of a well-structured corporate governance framework on private equity portfolio companies are immense. Corporate governance is about creating incentives and controls that will ensure managers use the firm’s resources in the interests of its owners and pursue value maximisation. Consequently, Private Equity portfolio companies will invariably benefit from good corporate governance in various ways which shall be discussed.

It is evident that private equity is not merely a transitory phase and private equity firms along with portfolio companies are slowly growing to build and reshape a new model. This trend will invariably have long lasting implications on the current corporate governance model and performance.