This post was originally published on fca.org.uk
Private markets refer to investments in assets, companies, or debt not listed or traded on public exchanges. They’ve grown significantly in recent years, and the UK is a leading international centre. Private markets play an increasingly important role in providing capital to businesses and opportunities for returns to investors. Private markets can give rise to conflicts that differ from those in public markets, and effective disclosure is important to enable investors to assess whether their interests are being protected.
The FCA found examples of good practice by firms across private equity, private credit and real estate asset classes. These included strong governance arrangements, effective oversight and independent challenge. It also identified some areas where firms could strengthen governance, oversight and conflicts management arrangements to support fair investor outcomes.
As private markets grow and business models become more complex, the FCA found that some firms were failing to identify conflicts adequately or keep their controls up to date. Recurring weaknesses were identified in areas including cross-fund transfers and multi-party transactions, gifts and entertainment, and information barriers.
The FCA expects firms to be able to identify, record, manage and disclose conflicts effectively, and demonstrate that investors are being treated fairly, particularly in areas where investors place significant reliance on firms’ judgement, governance and controls.
Michelle Beck, director of wholesale buy-side at the FCA, said: ‘Firms need to ensure their management of conflicts of interest keeps pace with growth in their size and complexity. We found good practice across the sector, but standards varied considerably. We want to encourage confidence in the UK’s private markets. Firms should act on our findings and identify where they can strengthen controls.’
Although not part of this review, the FCA is examining governance and conflicts concerns relating to the use of private credit to fund consumer litigation claims, including significant risks of harm to investors, consumers and markets.
Notes to editors
- Conflicts of interest and fair customer treatment in private markets.
- The review examined how firms identify, manage, mitigate and disclose conflicts of interest across private equity, private credit and real estate markets.
- The report includes examples of both good practice and areas where firms could strengthen arrangements.
- The review forms part of the FCA’s wider supervisory focus on private markets and investor outcomes.
