Code of good practice
The AFG plays an active role in providing information and proposals to channel investments towards the business sector. It does everything in its power to promote the growth of private equity, while providing safeguards for its development. The AFG, in association with the French Private Equity Association (AFIC), drew up a code of good practice for portfolio management companies authorised to handle private equity.
Reasons for a code of good practice
The code of good practice was prompted by several considerations:
- The growing role played by private equity,
- The specific nature of venture capital fund management, which is different from “conventional” management because of the closer special relationship with the target company. This relationship involves extensive dialogue with the company in order to establish a genuine partnership to help it grow.
- The increasing involvement of all types of investors in private equity through authorised venture capital funds, such as innovation funds and local funds.
- The growing stake of major institutional investors in private equity, which has been facilitated by the introduction of investment funds with streamlined registration procedures.
The code of good practice was approved by the then securities regulator, COB, on 22 May 2001. COB’s successor, the AMF, monitors compliance with the provisions of the code that apply to all asset management companies and their staff engaged in the management of venture capital funds or private equity management mandates, including the compliance of companies that are not AFG members. The AMF can refer any violations of the code to its disciplinary arm, the Enforcement Committee.
The code of good practice is in two parts.
- The first part, which applies to legal and natural persons, covers the ethical principals that should guide the actions of private equity investors. It also covers the general provisions applicable to all participants with respect to such matters as investor relations – (“participants have an obligation of transparency and equal treatment with regard to investors”), the exercise of shareholders’ rights, provisions applying to natural persons, conflicts of interest, listed securities and the obligation to use adequate resources.
- The second part contains specific provisions applying to situations that could create conflicts of interest, as identified in the so-called Adhémar report on managers’ obligations. It makes a distinction between authorised venture capital funds and those registered under the streamlined procedure. Preventing and dealing with conflicts of interest calls for a separation between AMF-authorised investment funds, which are open to all investors, including retail investors, and investment funds registered under the streamlined procedure, which are reserved for qualified investors. These investors are defined as having the expertise and special resources required to assess the risks inherent in private equity. As a rule, investment funds that are open to the public, and thus authorised, are subject to procedures and disclosure requirements that are more stringent and extensive and provide greater protective of investors’ interests.