EVCA Guidelines and Good Practice in the Management of Privately Held Companies in the Private Equity

and Venture Capital Industry

28 June 2005

Second European Corporate Governance ConferenceLuxembourg

Georges NoëlDirector of Research, Public Affairs and Development

EVCA

Introduction to EVCA

Established in 1983 and based in Brussels

Represents the European private equity and venture capital industry (PE/VC) and promotes the asset class both within Europe and throughout the World

Well over 900 members, mainly European

PE/VC fund management companies

Institutional investors (banks, pension funds, insurance companies...)

Professional advisors (lawyers, placement agents, investment bankers...)

National (European) Trade Associations

Over 40,000 companies financed, 6.5 million people employed and €156 million of equity invested

Introduction to EVCA

EVCA strategic priorities

Strengthen the industry across Europe by maintaining a strong and relevant community of shared interests for European PE/VC players

Actively raise awareness to improve knowledge and understanding of the European PE/VC industry

Reinforce and develop professional standards for the industry

Protect the interests of the industry and promote a favourable environment for European PE/VC and entrepreneurship

Introduction to EVCA

EVCA key services

Professional Standards

Public Affairs

Research

Conferences

Professional Development

Introduction to EVCA

Direct member involvement via EVCA’s seven operating Committees, led by industry specialists

Investor Relations Committee

Professional Standards Committee

Conferences and Member Services Committee

Tax & Legal Committee

High-Tech Committee

Buyout Committee

National Associations Committee

In addition, EVCA has a series of task forces and working groups on specific issues

EVCA Professional Standards Overview

Uniqueness of Europe versus the USA

PE/VC industry is a self-regulating industry

The most advanced professional standards of any alternative asset class

Code of Conduct

International Private Equity and Venture Capital Valuation Guidelines (IFRS/US GAAP compliant)

Reporting Guidelines

Corporate Governance

Governing Principles

EVCA Professional Standards Evolution

A 22 year history so far…

EVCA developed and promoted a range of guidelines for

the professional conduct of PE/VC fund managers

In respect of the management of their activities

And in their relationships with investors and portfolio

companies

22 Year History

GP (General Partner) level

EVCA Code of Conduct (1983)

GP-LP (Limited Partner/Institutional Investor) level

Reporting Guidelines (2000, update planned)

Governing Principles and Sound Practices for Establishment and Management of PE/VC Funds (2003)

Valuation Guidelines (1993, updated 2001, International Guidelines 2005)

GP-Portfolio Company level

Corporate Governance Principles (2005)

Professional Standards Framework

LP GP Company

ReportingGuidelines

GoverningPrinciples

ValuationGuidelines

CorporateGovernance

Codeof

Conduct

Corporate Governance Guidelines

Developed by EVCA Corporate Governance Working Group

Stakeholder and public consultation process (Autumn 2004 – Spring 2005)

Why these guidelines?

Good governance creates the environment for the attitudes, mechanisms and behaviours that allow well-informed decision making

Highlight the unique position of PE/VC funds

Applicable to a wide range of situations, circumstances and different investment stages

Multi-jurisdictional

Principles of Good Governance

Format of the document

Questions

Explanations

Recommendations

Principles of Good Governance

Law and regulations

Integrity

Partnership

Long term view

Respect for shareholders

Transparency

Confidentiality

Principles of Conduct as a Shareholder

How should the PE/VC investor conduct themselves in relation to

other investors in the business?

To what extent is the PE/VC investor responsible for the definition

and execution of corporate strategy?

What are the PE/VC investor’s responsibilities in relation to

performance information?

How should the PE/VC investor act in relation to the board?

To what extent does PE/VC investor have responsibilities in relation

to other stakeholders?

Principles of Conduct as a Board Member

What are the key components of strategy that are the

responsibility of the board?

What is the board’s role in relation to the identification

and assessment of risk?

What is the board’s role in relation to the management

of risk?

How should the board determine what a reasonable structure for

and level of remuneration are?

What is the role of the management agreement?

Principles of Conduct for Management

How should management go about establishing the control environment?

What should the procedures for risk assessment involve?

How can management fulfil their obligations in respect of control activities?

What are the management’s responsibilities in relation to information?

What are management’s responsibilities in relation to information systems?

How should management approach communication of information?

How regularly should management review the performance and appropriateness of their corporate governance procedures?

Conclusions

EVCA has always recognised that the reputation of the industry,

particularly as it controls increasing numbers of high profile

companies across Europe, requires that PE/VC fund managers go

further than the law demands through a process of self-regulation

Market forces ensure enforcement of higher standards by the

PE/VC industry

Institutional Investors increasingly use EVCA and other guidelines

as a basis for their investment decisions

Active ownership increases the value and strength of the company

Good governance is good for the company, good for the PE/VC

fund and good for the fund’s investors

Questions & Answers

Thank you for your attention

For more information on EVCAwww.evca.com

Annex

Additional Materials

Private Equity as an Asset Class

Repayments+ capital gains

Commitments

Divestments

Savings and pensions

Savings and pensions

Investments

Private Equity Funds

High-growth companies

Institutional investors(Insurance companies,

pension funds, banks…)

Private Equity Funds

Institutional investors(Insurance companies,

pension funds, banks…)

Saving accounts, Pension plans,

Insurance contracts…

Single Fund Structure

Young Innovative Companies

High Growth Markets

Pension Fund Directive (Prudent Man Rule)

Entrepreneurship

The Financing Cycle of Private Equity and Venture Capital

Investment

EVCA ACTION

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