Insights, a podcast with Professor Fabian Ajogwu, SAN: Recent Episodes
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 theirduty impartially. It is important, perhaps, that asset managers, given their fiduciary duty to client, identify and implement proper procedures and controls to eliminate or mitigate any real or perceived instances where the firm failsto put the interest of the client first or where the firm gains an unfair advantage over the client.
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 whoare outside of the company. This means that there is a lot of information left undisclosed.
Stakeholders in a Private Equity arrangement can be protected byway of partnership agreement or contractual agreement. However, they can be further protected by being kept fully informed on the decisions about the company’s liabilities, job securities and all that may concern them.
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.
Private Equity investment activities are prone to disputes. The categories of these disputes range from breaches of warranties and representations and performance based valuations to potential exits. We discuss major cautionary points for PE players who prefer the use of Alternative Dispute Resolution mechanisms for resolving disputes.
The subject of leadership is a pre-requisite for honouring the trust we hold as citizens, as business owners, as managers and as leaders in our different disciplines. It is the subject of honoring the trust we hold for others - the future generation.
Professor Fabian Ajogwu, SAN describes how far the Nigerian judicial system has gone in applying technology to enhance the administration of justice.
It is important to maintain a highly professional relationship with a client as a legal practitioner. In this podcast, we discuss the duties that the Nigerian law imposes as a guide for the relationship between an Attorney and a Client.