How should I disclose conflicts of interest?

The twelve places conflicts actually arise

Work through these once and the register writes itself. Most first funds have several.

• Personal investments. Companies you hold personally that the fund could invest in, or that compete with a portfolio company.
• Affiliates. Other entities you or your partners control, including advisory businesses and holding companies.
• Co-investment. Who is offered it, on what terms, and how the allocation between the fund and co-investors is decided.
• Allocation. How an opportunity is divided when more than one vehicle you manage could take it, which is acute where you have run special purpose vehicles.
• Related parties. Family, close associates, or firms connected to the team appearing anywhere in the fund's dealings.
• Portfolio overlap. Two companies in the portfolio that compete, which is a conflict between founders you owe duties to.
• Service providers. A provider connected to the firm or its principals, or one whose fees the fund pays and the manager selects.
• Founders. Where a founder is also an investor in your fund, an adviser, or otherwise inside your economics.
• Other funds. A prior fund still deploying, a successor fund raising, or another manager's vehicle you participate in.
• Advisory relationships. Paid or unpaid roles that could shape what you see or what you recommend.
• Valuation. The structural conflict in valuing your own portfolio, which is why the valuation process is assessed separately.
• Employee interests. Personal trading, outside roles, and side investments by the team, which need a policy rather than an understanding.

The five responses, which are not interchangeable

Naming the response you chose, and why, is the part that distinguishes a considered answer.

• Disclosure. Tell the relevant parties what the conflict is and when it arises. Determine the required timing and content with counsel; disclosure alone may not resolve it.
• Mitigation. Changing the arrangement so the conflict bites less: a different allocation method, an independent input, a cap on the affected exposure.
• Consent. Obtaining agreement from those affected, which for fund-level conflicts often means the advisory committee. Consent is meaningful only where the disclosure preceding it was complete.
• Recusal. Removing yourself from the decision. The cleanest response and the one managers reach for last, usually because it costs something.
• Recordkeeping. Keep an appropriate record of what was identified, disclosed and decided, including the responsible people. Apply the firm’s confidentiality, privacy and retention requirements.

The conflicts register

Blueprint's own framework. One row per conflict, maintained from formation rather than assembled when a questionnaire arrives.

• Date identified, and by whom.
• Description, in plain terms, including who is affected.
• Type, drawn from the twelve above, so patterns are visible.
• Parties involved, named internally even where the external disclosure is general.
• Response applied, from the five above, with the reason.
• Who was told, when, and in what form.
• Whether consent was sought, from whom, and what was granted.
• Status: live, resolved, or recurring, since some conflicts are structural rather than events.
• Review date, because a conflict that was immaterial at formation can become material at a follow-on round.

Escalation questions

Ask these when something surfaces, in this order. They convert a vague discomfort into a decision you can record.

• Who is disadvantaged if this proceeds, and by how much?
• Would a limited partner be surprised to learn about it after the fact? Surprise is the practical test, and it is stricter than materiality.
• Is the conflict one-off or structural, since structural ones need a mechanism rather than a disclosure.
• Does anything in the fund documents already govern it, which is a question for counsel rather than judgment.
• Can it be mitigated, and what does mitigation cost, in money or in opportunity?
• Should the decision maker be somebody else, meaning is recusal available?
• Who needs to consent, and do they have enough information to give consent that means anything?
• What will the record show in three years if this is examined then?

What goes in public materials and what goes in the room

The register is an internal document; what an allocator sees is derived from it.

• Public materials: nothing specific. Conflicts disclosure belongs in documents sent to qualified readers, not on a website.
• Questionnaire and data room: the policy, the process, and a description of live conflicts at a level that is complete without naming third parties who have not consented.
• Fund documents: the disclosures and consents counsel determines are required, which is a legal question rather than an editorial one.
• Advisory committee: the matters the fund documents route there, and anything where consent is the response you have chosen.
• Never: another party's confidential information used to explain your conflict, which trades one problem for a second.

What limited partners are testing

Conflicts diligence is character diligence with a paper trail.

• Did the manager volunteer the conflict, or was it discovered?
• Is there a register, maintained with dates, or a policy with nothing behind it?
• Does the manager distinguish disclosure from mitigation, or treat telling somebody as resolving it?
• Are the structural conflicts, allocation, valuation, and co-investment, addressed with mechanisms rather than assurances?
• Would the manager's answer be the same if the conflict were embarrassing?

What disclosure does not do

Disclosure does not cure a conflict, and it does not transfer the judgment to the person told. Where an arrangement is genuinely unfair to the fund, disclosing it makes the unfairness documented rather than acceptable.

This page also states no threshold for materiality and no market standard for what must be disclosed, because both depend on your fund documents, your jurisdiction, and your regulatory status.

This page is educational and general. It is not legal advice. What must be disclosed, to whom, and with what consent is determined by your fund documents and by the rules applying to your firm, and should be settled with counsel.