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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
EVCA ACTION
EVCA ACTION
EVCA ACTION
EVCA ACTION
EVCA ACTION