A conflict handled by disclosure alone has not been handled.

A manager that tells its register it has a conflict has done something, and the something is less than managers believe. Each regime's conflicts rules impose a set of duties: to identify the conflict, to prevent it from harming the fund where prevention is possible, to manage it by a process where it is not, to disclose it, and to record all of that. Disclosure is one of the set, and the one that costs the manager least, because a paragraph in the memorandum and a line in the report discharge it. The other duties are not discharged by the paragraph. A conflicted dealing that was disclosed and not approved by the constitution's route is a dealing the register knows about and can still unwind, a breach the regulator still prices, and, at exit, a line in the buyer's diligence report headed voidable. The buyer prices it. Disclosure told the register; it did not make the dealing lawful.

This note sets out the set of duties and where disclosure sits in it, why disclosure alone is attractive, what a disclosure discharges and what it does not, the consent that disclosure is mistaken for, the process that handles, prevention as the first duty, the buyer's reading at exit, the regulator's reading, the continuation sale as the case where disclosure is most mistaken for handling, the development platform and the affiliated developer, the lender's reading, the onshore interface, a comparison, a worked conflict as a type, cases, what each party holds, the sequence, questions, terms and what to read.

The set of duties

The conflicts rules in each regime, expressed differently, impose the same set. Identify: know where the manager's interests, or its affiliates' or principals', differ from the fund's. Prevent: where the conflict can be avoided by structure, such as by not appointing the affiliate, avoid it. Manage: where it cannot, run a process that removes the conflicted person from the decision and tests the terms on evidence. Disclose: tell the register, before subscription where the conflict is foreseeable and afterwards where it arises. Record: keep the evidence of each. Disclosure is the fourth of five, and the rules do not let the fourth stand for the others.

Why disclosure alone is attractive

Disclosure is cheap, general and final. A paragraph in the memorandum saying the manager and its affiliates may have conflicts of interest including dealings with affiliated funds, affiliated service providers and affiliated developers, and a line in the report saying such dealings occurred during the period, cost nothing and cover everything. Approval is expensive, specific and repeated: a committee convened, papers prepared, evidence commissioned, a minute kept, for each dealing. A manager that believes disclosure is handling has chosen the cheap duty and called it the set.

Why the duties are a set

The duties are a set because each does something the others cannot. Identification finds the conflict; without it nothing follows. Prevention removes it; where prevention is possible, it is the only handling that leaves no residue. Management substitutes an unconflicted decision for a conflicted one; it is the handling for conflicts that must exist. Disclosure informs the register so that its consent to the process is informed and its reading of the reports is possible. Recording proves the rest. A manager that does four and not the fifth has a gap each reader finds in a different place: the regulator finds the missing record, the buyer finds the missing approval, the register finds the missing disclosure, the court finds the missing abstention. The set is complete or the gap is somewhere.

The conflicts register

The first duty is discharged by a register: the manager's written list of its affiliates, its principals' interests, its other funds, its service relationships and its developers, with each conflict named and its handling recorded as prevented, managed by a route, or accepted under a framework. The register is reviewed annually and updated on each change, and every dealing is checked against it before terms are agreed. A manager without a conflicts register has not identified its conflicts; it has remembered some of them, and the ones it did not remember are the ones the buyer finds.

The disclosure before and the disclosure after

Disclosure before subscription is in the memorandum: the conflicts the structure will create, named, with the route that will handle each. Disclosure after is in the report: each dealing under a conflict, in a table, with its route and evidence. The two are different duties with different readers. The first is the prospective holder's information for its decision to subscribe; the second is the register's information for its reading of the committee's work. A memorandum that discloses generally and a report that discloses nothing have done half of the disclosure duty, and the half they did is the cheap half.

What disclosure discharges

Disclosure discharges the duty to disclose, and it does real work. A holder that subscribed knowing the manager's affiliate would administer the fund cannot later complain of the appointment as undisclosed. A register told of a dealing in the report has the information it needs to read the committee's minute and to ask. Disclosure before subscription is the regime's condition for the holder's informed consent to the foreseeable conflicts, and disclosure afterwards is the register's right to know. It is a duty, and it is discharged by doing it.

What disclosure does not discharge

It does not approve the dealing, because approval is the committee's or the register's by the route, and a disclosure is not a vote. It does not test the terms, because the terms test needs evidence and disclosure supplies none. It does not remove the conflicted person from the decision, because the conflicted person made it and then disclosed it. It does not prevent, because the dealing happened. And it does not record the process, because there was none. A disclosed, unapproved dealing has had one duty discharged and four left standing, and the four are the ones that make it lawful.

The consent disclosure is mistaken for

A holder's subscription after disclosure of the manager's foreseeable conflicts is consent to the existence of those conflicts and to the constitution's process for handling them. It is not consent to any particular dealing, and it is not a waiver of the process. A manager that reads the memorandum's conflicts paragraph as the register's standing consent to every affiliated dealing has read a notice as a waiver, and the constitution's route, which the same register adopted, says otherwise. The consent the register gave was to the process; the process is what the manager must run.

The process that handles

Handling a conflict means running the constitution's route for the dealing's kind: the conflicted person declares and abstains, the committee or the register approves on evidence that the terms are an unconnected counterparty's, the decision is minuted, and the dealing is reported. The process substitutes the register's voice for the conflicted manager's on the question whether the dealing should be done on those terms. That substitution is what handles the conflict, because it removes the conflicted interest from the decision; disclosure leaves the interest in the decision and tells the register afterwards.

The framework as handling

A framework approval handles a recurring conflict once: the committee approves the affiliate's appointment, its terms, a cap and a period, on evidence that the terms are a third party's, and dealings within the framework are reported without further approval. The framework is handling because the committee decided on evidence; its annual renewal is the committee's reading of the year's dealings against the terms. A framework is not disclosure by another name unless it is drafted as one, with terms so wide that every dealing fits, and the committee reads the framework's width as the approval it gives. The onshore service affiliate, the affiliated administrator and the affiliated property manager are each a framework, and each framework is a committee decision a year.

The principal's conflict

A manager's principal holds interests the manager's conflicts register must carry: a personal investment beside the fund, a directorship of a counterparty, a relation's company that supplies the onshore vehicles. The principal's conflict is the manager's, because the principal decides for the manager, and the route runs with the principal's declaration and abstention at the manager's own investment committee as well as at the fund's committee. A manager whose internal investment committee has no declaration rule has a conflict the fund's committee never sees, because the conflicted principal shaped the paper the fund's committee read.

Prevention first

Before the process comes the question whether the conflict need exist. A manager that appoints an unconnected administrator has no administration conflict to manage; one that appoints its affiliate has a framework to approve annually and a conflict for the fund's life. A platform that engages an unconnected developer has joint ventures to negotiate; one with an affiliated developer has related-party approvals at every step. Prevention is the first duty because it is the cheapest handling: a conflict that does not exist needs no process. The register reads the structure for the conflicts the manager chose to create, and asks why each was not prevented.

The buyer's reading at exit

A buyer of a position, a holding company or the fund's portfolio at a continuation sale diligences the conflicted dealings in the chain: the affiliated contracts, the affiliated loans, the affiliated service agreements, the promote to the affiliated developer. For each it asks whether the dealing was approved by the constitution's route and minuted, and a dealing that was disclosed and not approved is recorded as voidable: the fund, or the buyer standing in its shoes, could unwind it, and the counterparty, being the affiliate, could not resist. The buyer prices the voidability as risk, requires ratification as a condition, and takes a warranty. Disclosure, at exit, is the buyer's evidence that the manager knew of the conflict and did not handle it.

The court's reading

A court hearing a holder's claim over a conflicted dealing reads the same set: whether the conflict was identified, whether it could have been prevented, whether the process ran and the conflicted person abstained, whether the register was told, and whether the record shows it. The manager's defence that the conflict was disclosed in the memorandum is an answer to the fourth question, and the court moves to the third. A minute showing the committee's approval on evidence is the answer to the third, and a manager without one is a manager whose defence is its own assertion that the terms were fair, which the court weighs against the fact that the manager was on both sides.

The regulator's reading

The regulator reads the conflicts rules as a set and inspects for each: the conflicts register, the prevention decisions, the process's minutes, the disclosures, the records. A manager whose inspection file shows the memorandum's paragraph, the reports' lines and nothing else has met the fourth duty, and the regulator's finding names the other four. The finding is priced, and the price is the manager's standing in the regime that licenses it.

The continuation sale

The continuation sale is where disclosure is most mistaken for handling, because it is disclosed to everyone: the register receives an election document, the terms are set out, the manager's roll of its carry is stated, the conflict is named in the first paragraph. And the conflict is the manager selling the fund's positions to itself. Handling it is the committee's approval on an independent fairness opinion, the register's approval where the constitution requires it, the election given to each holder, and the minute of all of that. A continuation sale that was disclosed in an election document and approved by a committee without an opinion is a disclosed, unhandled conflict of the largest size, and the holders that rolled and later sell their continuation units to a buyer find the buyer's diligence reading it.

The election as handling

The election in a continuation sale, by which each holder chooses to sell, to roll or to stay, is part of the handling and not the whole of it. The election gives each holder a way out of the conflicted transaction, which mitigates the conflict for that holder; it does not test the price, which the fairness opinion does, and it does not approve the terms, which the committee does. A continuation sale handled by election alone has given holders a choice between a price nobody tested and a vehicle nobody approved, and the holders that rolled chose on the manager's number. The three parts run together, and the minute records all three.

The affiliated developer

A development platform with an affiliated developer is a structure whose conflicts were not prevented, by choice, because the developer's standing in the market was the reason for the platform. The choice is lawful, and it is disclosed in the memorandum, and the disclosure is the start. Every joint venture, construction contract, development charge, promote, in-kind contribution and sale is then a dealing to be handled by the route, and a platform whose memorandum disclosed the affiliation and whose committee approved nothing has disclosed a decade of conflicts and handled none. The buyer of the platform's positions at exit reads each joint venture's documents for the approval and prices what it does not find.

The lender's reading

A lender reads disclosed, unhandled conflicts as risks to its security: an affiliated contract at the onshore vehicle that the fund could unwind, an affiliated loan ranking beside the lender that was never approved, a promote paid under a document the committee never saw. The facility requires the manager to represent that conflicted dealings affecting the secured positions were approved by the constitution's route, and a representation the manager cannot give is a facility the lender prices.

The onshore interface

Onshore companies law in a register jurisdiction has its own conflicts rules for directors and shareholders, and disclosure to the onshore board is likewise one duty of a set: the conflicted director abstains, the board or the shareholders approve, the dealing is recorded, and in some regimes filed. An onshore dealing disclosed at the fund and not approved onshore is unhandled in two regimes, and onshore counsel runs the onshore process alongside the fund's. The onshore registrar and the onshore regulator read the onshore minute, not the fund's memorandum.

By duty · by instrument	What discharges it	What disclosure alone leaves	Who reads the gap
Identify	The conflicts register, checked before each dealing	Conflicts unrecognised	The regulator
Prevent	The structural choice not to create the conflict	The conflict created	The register, at subscription
Manage	The route: declaration, abstention, approval on evidence	The conflicted interest in the decision	The committee, the buyer, the court
Disclose	The memorandum and the report	Nothing; this is the duty discharged	The register
Record	The minute and the report's table	No evidence of process	The regulator, the buyer

A conflict, as a type

A manager's affiliate proposes to lend the fund a bridge to close a position before the facility is drawn. The manager identifies the conflict from its register of related parties. It considers prevention: a third-party bridge is available at a higher rate in a longer time, and the position would be lost. It runs the process: the affiliate's terms are compared to the third party's quotation, the committee is convened on notice with the papers, the manager's representative does not vote, the committee approves the bridge on the comparison and on the condition that it is repaid from the facility's first drawdown, and the minute records it. The lender consents because the bridge ranks behind it. The dealing is disclosed in the quarter's report with the relationship, the terms, the route and the evidence. At exit the buyer's diligence reads the minute and moves on.

The structure paper's page

The structure paper carries a page on conflicts: the conflicts register's first entries, the prevention decisions and their reasons, the routes by kind, the frameworks, the memorandum's disclosure, the report's table, the onshore process, the lender's representation, and the continuation sale's route. The page is written at design because prevention is a design decision, and it is the page the manager's compliance runs the register from.

The manager's own reading

A manager that believes disclosure is handling is usually a manager that has never been asked the question in the form the buyer asks it: was this dealing approved by the route, and where is the minute. The question is asked at exit, when the answer cannot be changed, and the manager that asks it of itself at each dealing has the answer filed. The reading this note proposes is the buyer's, applied in advance, and the manager that adopts it finds the set of duties is a quarter's work and not a decade's claim.

The second fund's reading

A manager's second fund is read against the first fund's conflicts record: the register, the prevention decisions, the routes run, the tables in the reports, the regulator's findings. A prospective anchor that asks how the first fund's affiliated dealings were approved and receives minutes has its answer; one that receives the memorandum's paragraph has a different answer. The second fund's conflicts disclosure is drafted against the first fund's record, and the affiliated developer that built the first platform is named in the second's memorandum with the route that handled it.

Four cases, as types

A manager discloses in the memorandum that its affiliates may provide services, appoints its affiliate as property manager to every onshore vehicle, and reports the appointments. No committee approved any. At the continuation sale the buyer's diligence lists every property management agreement as voidable and requires each to be re-approved or replaced before completion.

A platform discloses its affiliated developer and approves each joint venture at the committee, but approves the construction contracts, the development charges and the promotes by the manager alone as operational. The investors' claim at the platform's end is for the process on every contract, and the buyer of the last project prices the claim.

A manager discloses a continuation sale in the election document and the committee approves on the manager's valuer's number without a fairness opinion. Holders that rolled find, three years on, that the buyer of their continuation units reads the sale as voidable at the fund's instance and prices it.

A manager keeps a conflicts register, prevents what can be prevented, runs the route for each dealing with evidence and a minute, discloses before and after, and records. The buyer, the regulator and the lender each read a complete set and price nothing.

What each party holds

The manager holds the conflicts register, the prevention decisions, the process, the disclosures and the records.

The committee holds the approvals on evidence and the minutes.

The register holds the disclosure before subscription, the reports afterwards and the election to unwind.

Counsel holds the regime's rules, the constitution's routes and the onshore process.

The buyer holds its diligence and its price.

The lender holds its representation and its consent.

Where it surfaces

It surfaces at the first affiliated appointment, when the manager reads the memorandum's paragraph as its approval. It surfaces at the committee's first quarter, when the reports' line about affiliated dealings prompts a member to ask which ones. It surfaces at the regulator's inspection, when the conflicts file is the memorandum and the reports. It surfaces at the onshore registrar, when an affiliated contract is filed without the onshore board's approval. It surfaces at the lender's representation, when the manager cannot give it. It surfaces at the continuation sale's election, when a holder's counsel asks for the fairness opinion. And it surfaces at exit, in the buyer's diligence report, under the heading the manager never expected to read.

The cost of getting it wrong

A disclosed, unhandled conflict costs the fund the dealing's validity, which the buyer prices at exit and the register may exercise before. It costs the manager the regulator's finding on four of five duties. It costs the holders that rolled into a continuation vehicle a sale that a later buyer reads as voidable. And it costs the platform with an affiliated developer a decade of unapproved contracts that the investors' claim lists one by one. Each cost was a process the manager thought disclosure replaced, and the cost of the process was a committee meeting a quarter.

The register's reading

The register reads the memorandum's conflicts disclosure at subscription for the conflicts the manager chose to create, and asks why each was not prevented. It reads the constitution's routes for whether each disclosed conflict has a route that handles it. It reads the reports' tables for whether the routes ran. And it reads the committee's minutes, through its representative, for the evidence. A register that reads only the memorandum's paragraph has consented to a process and not checked that it exists; one that reads the routes and the tables has read the set.

A timeline, as a type

At the structure's design the conflicts register is opened and each foreseeable conflict is prevented or accepted with a reason: the administrator is unconnected; the onshore service affiliate is accepted under a framework; the developer is affiliated and every joint venture dealing is reserved to the committee. At the first close the memorandum discloses the accepted conflicts and the routes. In year one the framework is approved and the first joint venture's terms are approved on comparisons. In year two an affiliated bridge is approved on a quotation with the lender's consent. In year four the regulator inspects the conflicts register, the minutes and the tables. In year seven the continuation sale is approved on a fairness opinion with each holder's election. In year nine the buyer of the continuation vehicle's positions reads a complete record. The conflicts were disclosed, and they were handled, and the two were different things done in sequence.

The sequence

1. The conflicts the structure will create are identified at design, and each is prevented or accepted with a reason.
2. The accepted conflicts are disclosed in the memorandum, with the process that will handle them.
3. Each dealing is checked against the conflicts register and run through the route with evidence.
4. The conflicted person declares and abstains; the committee or the register approves; the minute records.
5. The dealing is reported in the quarter's table.
6. At exit the buyer reads a complete record.

Questions a manager asks

Is the memorandum's paragraph enough for foreseeable conflicts. For the disclosure duty, yes; for the others, no; each dealing under a foreseeable conflict still runs the route.

Can the register waive the process. By amendment of the constitution with the majority it requires, and a regime that requires the process regardless will not accept the waiver.

What if the committee cannot meet in time. A written resolution on the papers, or the manager proceeds at risk and seeks ratification, which cures the voidability and not the breach.

Does prevention mean never using affiliates. It means asking whether the affiliate is needed, recording the answer, and running the route if it is.

Who tests the terms. The committee on evidence: a quotation, a valuer, a comparison, an opinion; not the manager's assertion.

How does the buyer find unhandled conflicts. By reading the minutes against the affiliated contracts; a contract without a minute is the finding.

Terms used

The set: the duties to identify, prevent, manage, disclose and record a conflict.

Disclosure: telling the register a conflict exists, before subscription or in the report.

Handling: running the constitution's route so that the conflicted interest is removed from the decision.

Prevention: the structural choice not to create a conflict.

Voidable: liable to be unwound at the fund's election, as a buyer reads an unapproved dealing.

Ratification: later approval that cures voidability and not the regulatory breach.

What to read

The regime's conflicts rules; the constitution's routes; the memorandum's conflicts disclosure; the committee's minutes; the reports' related-party tables; the onshore companies law on directors' conflicts. On this site, the governance room under Where complexity arises, the exposure room under Land and the continuation room under Structures.