In the specific case of funds and management companies operating with a broad geographic reach and a sector agnostic approach, rigorous governance procedures and discipline adopted by the firm are vital, both from a risk management perspective and from a business continuity angle.

With growth, risks naturally increase, and they can be magnified by a context of crises of all sorts: economic, political, social, pandemic, and reputational. Over the past few years, several companies have endured the consequences of poor governance, triggering acute interest and scrutiny from investors, as well as the investment management community.

Through 25 years of existence, our firm grew from three initial partners to nearly 80 investment professionals— including 25 equity partners with 30% female staff, working across seven offices in Africa and two in Europe. Together, we have built a track record of around 155 investments in 25 countries. Along the way, sound governance practices have been tested, adopted, and reinforced, evolving with the pace and size of our activity.

With our group becoming a more complex organization, as a priority, we work consistently on improving the dynamics of internal communication to ensure that our decision-making process is clear, sequenced, and inclusive. Investing in a customized, proprietary, in-house IT system is the cornerstone to achieving a transparent and timely internal communication process. This solution, built around our structured investment process while taking into account the requirements (reporting, legal, etc.) of our different departments (Front Office, Middle Office, Responsible Investing, Compliance, Investor Engagement and Legal), is now the main tool used across our group. It allows the team to work closely together, follow the same process, and access the platform from any location.

In addition to this virtual solution, we have adopted organizational mechanisms. Through the creation of several committees and the identification of key business units over the past few years, we have implemented different levels of approvals and established a system with proper checks and balances conforming to the roles and responsibilities of each department and investment professional. For instance, by establishing Screening and Review Committees, which consider new opportunities for the pipeline, review the performance of the various investees, and evaluate exits, the team members not only share experiences, but also raise red flags at early stages of the process, keep track of the performance of the portfolio, and set the pace of investments and exits.

While setting a Board of Directors may seem like the first priority in establishing good governance standards, most of the work takes place in the structure underneath the Board. For instance, we have put in place an Executive Committee comprised of senior investment professionals who focus on key matters, such as agreeing on the firm’s strategy, recruiting senior-level hires, evaluating the launch of new initiatives, exploring the opening of new offices, and deciding on corporate social responsibility programs. Other committees have been established in order to streamline operations such as:

• A Risk and Compliance Committee, which oversees regulatory compliance and risk management activities across the firm and provides guidance on arbitrating conflicts of interest.
• A Valuation Committee that independently reviews the valuations of the different funds.
• A Human Resource Sub-Committee, which is organized by region and is in charge of HR themes, such as training and performance appraisals.

For each committee, it is crucial to have the discussions and decisions properly documented. All of these different committees—complemented by a set of policies built up over the years around human resources, compliance, investor engagement, accounting, etc.—have resulted in a more engaged team, as well as a more effective and efficient Board of Directors. Ultimately, the role of the Board is overall oversight of the operations. It takes a holistic view of the firm and ensures that interests are aligned—internally as a GP, as well as with our LPs and other stakeholders.

 

Through the different stages of our growth, governance has always been an integral part of our culture. It is our belief that if a firm wants to grow sustainably, it must continue to put the emphasis on adapting its governance and organizational processes to its size, and on adopting best-in-class policies. An investment firm also has to lead by example as it strives to establish good governance standards within the portfolio companies. Good governance is a virtuous circle and a living standard that requires constant improvements.

 

This article first appeared in the EMPEA report “Governance in Emerging Market Private Capital: A Practical Resource for Investors and Fund Managers”. The full report can be found here.