How to Evaluate AIF Governance and Conflicts
Understanding the Manager Decision
Governance in an AIF context means the checks that constrain a manager's discretion: an independent valuation process, an investor advisory committee with real approval rights over conflicted transactions, and clear disclosure obligations for related-party dealings.
Reading Evidence and Attribution
Common conflicts to check for: does the manager or its affiliates receive fees from portfolio companies beyond the standard management fee; does the manager invest in deals across multiple funds it runs, and if so, how is allocation between funds decided; and does the investor advisory committee have real veto power or only advisory status.
Where Manager Diligence Breaks
The common failure is treating the existence of an investor advisory committee as sufficient governance without checking whether it has genuine approval authority over conflicted transactions, or is merely informed after the fact.
Making the Selection Decision
Before committing, verify: the manager's disclosed related-party and additional-fee arrangements; the specific allocation policy across multiple funds run by the same manager; and whether the investor advisory committee holds real veto rights over related-party transactions, not just an advisory role.
Real governance is measured by whether a committee can actually stop a conflicted transaction, not by whether one exists on paper.
Key takeaways
- Governance means the actual checks constraining manager discretion, not the existence of a policy document.
- Check for related-party fees, cross-fund allocation policy, and genuine investor-committee veto rights.
- An advisory committee informed after the fact provides far weaker protection than one with real approval authority.
- Real governance is measured by whether a conflicted transaction can actually be stopped.
More in Fund Manager Selection and Due Diligence
Continue with the other chapters in this module.
Related questions
What should an investor verify first?
Whether the manager or its affiliates receive fees from portfolio companies beyond the standard management fee.
Which documents matter most?
The investor advisory committee's charter, specifically its approval rights over conflicted transactions.
What is the main downside to test?
Treating the mere existence of an advisory committee as sufficient without checking its actual veto authority.
How should the final decision be made?
Confirm the committee holds real veto rights over related-party transactions, not just an advisory role.
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