The Thesis conflicts of interest policy can be found here.
Relevant rules: Principle 8 and SYSC 10 and AIMA guidance
Rules summary: We need to identify record and manage conflicts of interest in accordance with the policy that we have established. We also need to manage any Chinese walls we consider necessary to address our conflicts of interest.
FCA Principle 8 requires firms to manage conflicts of interest fairly. It is our policy to identify the conflicts of interest that may exist between:
(a) ourselves or anyone linked to the firm and our clients or
(b) one client and another. We must ensure that clients are not adversely affected by potential risks.
Therefore we document the arrangements we have put in place to manage the conflicts identified entailing a material potential risk of damage to the interests of one or more clients. We take all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. Where the potential risk cannot be effectively managed with reasonable confidence to prevent the risk, we disclose this to our client before providing services. We make disclosure in a durable medium; providing sufficient detail to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises
Conflicts of interest are situations where:
- We are likely to make a financial gain, or avoid a financial loss, at the expense of a client;
- We have an interest distinct from the clients, in the outcome of a transaction undertaken on clients’ behalf;
- We have a financial interest or other incentive in favouring one client over another;
- We carry on the same business as the client; or
- We receive a payment or other form of inducement from someone other than the client other than a contractually agreed commission or standard fee.
The arrangements to manage potential conflicts of interest include:
- Chinese walls;
- Segregation of functions;
- Independent supervision;
- Removal of direct remuneration incentives;
- Avoiding inappropriate influence being brought to bear in the way clients are treated;
- Operation of dual controls; and
- Policies in relation to employees personal interests in investments i.e. PA Dealing Rules.
Where we choose to use Chinese walls to withhold or not use information held by one part of the business, these arrangements must be documented and independently monitored to maintain evidence of their effectiveness.
These arrangements may be a proper control and defence against the risk of market abuse if appropriately controlled. Where we are involved in offerings of securities to the market place alongside managing clients assets we should agree with clients in writing how potential conflicts in allocation of transaction between ourselves and between different types of clients will be handled.
If you are concerned about a potential conflict of interest this should be discussed with the Compliance Officer.
Side letters are agreements that provide for special arrangements which contain provisions additional/different to those in the standard offering documents issued to investors in general.
Currently, the FCA have not issued prescriptive rules outlining the disclosure of side letters. The FCA is concerned with ensuring that the current and potential investors at all times have complete and relevant information necessary to make an informed investment decision. Side letters present possible conflicts with respect to an investment manager fiduciary duty to its investors in addition to possible breaches of the FCA Principles.
The main conflict of interest with side letters is the potential for one or more investors to be advantaged over other investors by terms within their side letters. For example, the preferential early exit of one investor may reduce the portfolio liquidity, which might make withdrawals unavailable to other investors. Subsequently it may be the case that other investors are actually disadvantaged. Consideration should be given to whether the nature and scope of the provisions are consistent with treating all investors fairly.
Any side letter which contains ‘material terms’ should be fully considered before it is put in place, a material term is defined in the AIMA guidance as:
“Any term the effect of which might reasonably be expected to be to provide an investor with more favourable treatment than other holders of the same class of share or interest which enhances that investor’s ability either (i) to redeem shares or interests of that class or (ii) to make a determination as to whether to redeem shares or interests of that class, and which in either case might, therefore, reasonably be expected to put holder of shares or interests of that class who are in the same position at a material disadvantage in connection with the existence of their redemption rights”.
Examples of material terms would include preferential redemption rights, ‘key man’ provisions, redemption ‘gate’ waivers and portfolio transparency rights.
Where such conflicts arise, they will be reported to the Compliance Officer, who will record them.
In all such cases, the Compliance Officer will decide what the appropriate action to take is. In no case will the firm involved or any given client be favoured to the detriment of another client and in all instances the conflict of interest will be managed fairly. The appropriate action will consist in the firm(s) taking one or more of the following steps:-
(a) disclosing the interest in writing to the client(s) affected.
(b) preventing conflicts of interests as defined in SYSC 10.1.3 R from constituting or giving rise to a material risk of damage to the interests of the firm’s clients (the way in which this is done should be recorded and made known to the relevant staff member and client(s)).
(c) declining to act for the client(s).