By Blandine CORDIER-PALASSE, Capital-Investissement, Guide Collection, Yearbook 2017
You say that until now, investment funds didn't really need to bring a legal department in-house. Why should that change in 2017?
With the advent of the Sapin II law, the increasing complexity of international regulations and the rise of ESG obligations, we believe that it is becoming relevant to create this function internally. That said, an investment fund is not a CAC40 company! We therefore recommend that they create a division with a broader scope. It would cover legal affairs, compliance, risk management and ESG issues. The aim is to pool the resources across all our holdings.
So it's time for private equity firms to equip themselves in-house?
Yes, for Western funds investing in emerging countries, their own LPs require them - in all operations. This is an obligation under their regulations - to conduct a Compliance and ESG audit. For the duration of the investment, Compliance and ESG rules must be applied. We believe that investing in this recruitment is profitable not only financially but also, and above all, in terms of added value. More specifically, here are 3 reasons for creating such a unit:
1/ A proactive and fast asset upstream of deals
Having one or more business-minded and centric experts at your side at all times, who are familiar with the issues, culture and holdings of the fund, will enable management companies to act and react quickly, to anticipate, to pre-empt issues with a high level of view, strategic vision, hindsight and agility, so as to be one step ahead of the game.
2/ A regulatory tsunami
Legal, compliance and ESG issues are becoming a constant concern. They will increasingly have to be integrated into the strategy and day-to-day management of funds and their holdings. Similarly, risk monitoring and reporting requirements are growing all the time. Having expert business partners "in residence" will be a valuable asset.
3/ A protective role
Beyond the constraints of processes, charters and reporting, it is in their ability to instil a culture of integrity and business ethics throughout the company that these experts will play their part in the 'strategic' protection of the company - and therefore contribute to its long-term survival.
This is an interesting vision, but isn't it a long-term one?
It's true that, for the moment, there are few French private equity firms that think along these lines. But there are some: Ardian, for example. Ardian, for example, is one of the world's top 10 and has strong teams. Or Idinvest, which expanded in 2016. On the other hand, in the US, the biggest American funds have understood their interest. Apollo in 2007 and since then, Carlyle, KKR, Blackstone and Ares, to name but a few, have recruited a Chief Compliance Officer of the highest calibre, who is often a member of the Board. I'm convinced that the best French private equity firms will soon follow suit - performance and sustainability are essential.
How can you help funds and their investments to cope with these changes, which you seem to believe are inevitable?
The combination of my experience in a major investment fund and my expertise in international recruitment on the
The legal, compliance, risk and governance functions give me a detailed understanding of the needs of the funds, which enables me to
to help them calibrate this type of position. We bring them our knowledge of the market - which is constantly evolving towards profiles that are much more business-centric and proactive. As a result, my team can refine the search and select the profiles that are most in line with the expectations of the managing partners - through dialogue and efficiency.
"In the US, the Compliance Officers and General Counsels of the largest funds are members of the Board.
Blandine CORDIER-PALASSE
