Conflict of Interest Register

A policy says what a fund will do about conflicts. A register says what actually happened.

The Conflict of Interest Register is where the Sponsor or Investment Manager writes down each conflict as it arises, together with what was done about it. It turns a promise into evidence.

That is the whole value of it. A conflict handled well and recorded nowhere looks, two years later, exactly like a conflict that was hidden. A register gives a date, a name and a decision trail that an auditor or SEBI can follow.

The register is not a substitute for telling investors. Disclosure to investors happens too, in the placement memorandum and as conflicts arise. The register is the fund's own book of record behind that disclosure.

Where it sits. Chapter 11, section 11.3.6 (Conflict of Interest Issues). To resolve potential conflicts of interest, the Sponsor or Investment Manager must:

1. identify potential conflicts that may arise from relationships between the fund, its manager, sponsor and investors;
2. enforce high-level principles on avoidance of conflicts with associated persons;
3. obtain consent from investors, particularly for investments involving associates of the manager or sponsor;
4. disclose all potential conflicts to investors as and when they arise or seem likely to arise, including the nature and source of the conflict, in the Placement Memorandum and Scheme Information Document; and
5. establish and implement written policies and procedures to identify, disclose, monitor and appropriately mitigate conflicts — which includes documenting the conflict, its nature, and any actions taken to address it in the Conflict of Interest Register.

What a register entry has to contain. The workbook gives its own worked case: an Investment Manager of one AIF co-invests in a company alongside another AIF Manager who is also the Registered Valuer appointed by his AIF. That engagement must be disclosed and documented in the register, including:

• details about the current engagement with the Registered Valuer;
• the name of the related party;
• the nature of relations;
• the date since the potential conflict has arisen;
• the type of investment proposed;
• the market price at which the investment would be made by the AIF; and
• how the manager should make the investment decision based on the investors' response or approval.

That last item is the point of the whole exercise. The register does not merely note a conflict; it records the decision rule the manager will follow, and ties it to what investors said.

One register per scheme. Chapter 11 says the code of conduct would ensure that the AIF manager maintains a separate Conflict of Interest Policy and Register for each scheme — and, in the same illustration, that where the investor charter promises disclosure of conflicts on a monthly basis, the code of conduct ensures monthly updates on potential conflicts.

The machinery it sits inside. The stewardship circular referred to in Chapter 13 lists the other measures for addressing conflicts: blanket bans on investments in certain cases, a Conflict of Interest Committee to which matters may be referred, clear segregation of voting from client relations and sales functions, a recusal policy for anyone with an actual or potential conflict in a transaction, minutes of decisions taken to address conflicts, and periodic review, update and public disclosure of the policy.

No figure attached. The workbook gives the register no monetary threshold, no retention period and no filing deadline. Entries are made as conflicts arise or seem likely to arise. Where it wants a period, it says so elsewhere — investor grievances are redressed within 21 calendar days — but nothing of that kind is stated for the register, so do not assume one.

The names and amounts are illustrative; the register's contents and the co-investment case are the workbook's.

Meridian Alternatives is the Investment Manager of two funds. It proposes that Meridian Growth Fund — Scheme II invest Rs 45 crore in Kaveri Analytics Pvt Ltd, alongside Nilgiri Capital, the manager of another AIF. Nilgiri Capital is also the Registered Valuer appointed by Nilgiri's own AIF.

That is the workbook's own fact pattern, and it goes in the register:

Then the consent step. Because the investment involves an associate relationship, Meridian seeks investor consent, and discloses the conflict in the Placement Memorandum and Scheme Information Document. Investors holding Rs 210 crore of the scheme's Rs 300 crore respond in favour. The manager proceeds, and the register records the response and the decision.

Then the discipline. Scheme II and Scheme III each keep their own policy and register. When Nilgiri Capital later appears in a Scheme III deal, Scheme III's register carries its own entry with its own date — the Scheme II entry does not do duty for it.

What a missing register costs. Eighteen months on, a Rs 45 crore holding is written down. Without a register entry, the manager cannot show the conflict was identified on 14 June, disclosed, consented to, and priced off an independent valuation. The investment decision and the conflict become impossible to separate.

Chapter 11, section 11.3.6, and the Chapter 11 code of conduct discussion that requires a separate policy and register for each scheme. Chapter 13 supplies the stewardship-circular measures that surround it, and Chapter 9's Investor Charter timelines require intimation of any conflict of interest.

The discriminating question is register versus policy. Expect: which document records an individual conflict and the action taken (the register), whether one register serves the whole AIF (no — one per scheme), and a list question on the contents of a register entry where the answer includes the market price and the date since the potential conflict has arisen. The Registered Valuer co-investment case is the workbook's own illustration and is worth knowing in its exact shape.

• The policy is not the register. The Conflict of Interest Policy describes the nature of potential conflicts, the mitigation methodology and the disclosure mechanism. The register records each actual conflict, its nature and the action taken. Chapter 11 expects both, per scheme.
• One register per scheme, not one per AIF. This is stated through the code of conduct and is an easy mark to lose.
• The register does not replace investor disclosure. Consent, and disclosure in the Placement Memorandum and Scheme Information Document, are separate obligations in the same list.
• The market price goes in the register. Candidates remember the names and dates and forget that the register records the price at which the AIF would invest — which is what makes the entry testable later.
• A Conflict of Interest Committee is a stewardship-circular measure, not the register. So is recusal, so is segregation of voting from sales.
• No threshold, no deadline. The workbook attaches no rupee figure or number of days to the register. Entries are made as conflicts arise or seem likely to arise.
• Conflict of interest as a general term is written from a research analyst paper. The register is an AIF governance artefact and its contents come from Chapter 11 of this workbook.