Growth-focused private equity firms often have a large volume of small-to-medium portfolio companies aimed at maximising returns in a few years. As mature and established companies, these firms often have strict regulatory obligations and ethical standards. They often target several different sectors and geographic markets, adding complexity to implementing regulatory and compliance requirements. They also often target companies that have never needed an anti-money laundering (AML) and anti-bribery/anti-corruption (ABC) framework.
As a result, portfolio companies' internal compliance function is commonly undersized and under-resourced, if it exists at all. Where it does exist, this compliance function cannot effectively support the company’s expansion and risks arising from relationships with third parties.
Having a robust compliance programme and being able to show that it has been implemented can add value to the portfolio company, allowing the private equity fund to demonstrate to potential buyers that they are managing regulatory, legal and reputational risks.
The private equity organisational model drives the need to uphold these standards. A private equity firm is ultimately liable for any risks or strategic decisions their portfolio company takes, both from a regulatory as well as a reputational perspective. Any fines or loss of profit would directly impact the financial return to the fund and its principals. It is in the firm’s interest to minimise these risks by ensuring relevant compliance processes and procedures are disseminated to portfolio companies.
Scaling your compliance programme effectively
But implementing and maintaining the necessary standards can pose challenges. How can private equity firms scale their compliance programme in a way that covers all relevant regulatory obligations, while being cost-effective?
Hiring and building up each portfolio company’s compliance function would not be sustainable. A better solution is outsourcing the running and implementation of the fund manager’s compliance programme. This brings many benefits and allows easily scalable processes:
- Objective and impartial due diligence assessments conducted in a consistent and standardised manner
- High quality research and suggested mitigations provided by experts drawing on established methodologies, all based on best practices and international standards
- Cost-effectiveness
- Managed service, taking the burden off central compliance team
By outsourcing standardised compliance processes across multiple portfolio companies, fund managers can ensure their portfolio companies are managing regulatory risks in a scalable and effective manner. Outsourcing ensures that due diligence assessments are objective and impartial, rather than influenced by business movements. Often portfolio companies do not have the budget to hire an additional compliance professional and benefit from the external support.
Tailored support from a global network of experts
Control Risks VANTAGE has helped private equity firms assess and mitigate regulatory risk by drawing on our compliance experts, who have extensive experience advising a range of clients on industry standards and best-practice.
Across various client projects over the last 6 years, they have applied their collective expertise operating in most countries and sectors, leveraging fluency in local languages and experiences, and advising clients across all the jurisdictions in which they operate.
With our clients’ needs and requirements top of mind, our experts tailor their knowledge and experience to the Know Your Customer (KYC) work they complete for each portfolio company, considering, among other factors, the type of counterparty and sector of activity.
By building a direct relationship with the fund manager, our experts are able to clearly understand the firm’s standards and policies and implement them quickly when a new portfolio company is brought onboard, complementing the portfolio’s compliance team and upholding the policy of the fund manager.
Our experts can also help bridge the gap between their company operations and the private equity firm’s regulatory requirements and standards. Often the investment employees are not as well-versed in the KYC requirements for a specific deal. We also help implement any potential improvements that can be made to a policy or procedure.
With VANTAGE Portfolio Managed Compliance, we provide a centralised end-to-end compliance solution that is tailored to requirements and rolled out across a firm’s portfolio companies to drive consistency.