Description

Private equity investing and the relationship between the GP and the LPs are plagued with the risk of agency costs, so the markets have developed several mechanisms to align the incentives of the funds and the investors, most importantly through disclosure and limited partnership agreements. However, such agreements do not effectively with the most important agency conflicts, which may support the case for more specific regulation. Understanding the risk-allocation space created by the main relationships between the GP, LPs, the company managers and the portfolio companies’ creditors gives us a more comprehensive view on the intrinsic and systemic risks arising in private equity. This paper evaluates the game-theoretical framework between the GP and the LPs, the ‘Investment Game’ supported by a brief analysis of the ‘management game’ and the ‘debt finance game’. The Investment Game evidences and sets forth the proper limits for fund disclosure regulation and the regulation addressing the agency costs problem. As a result, this paper proposes certain refinements to fund regulation that can be utilised to make a national regimes more competitive.

 About the Speaker

Mika completed his Masters degree at the University of Helsinki, and his M.Jur(Distinction) as well as his M.St at the University of Oxford. He completed his DPhil in Oxford in 2020. Mika has extensive experience, on partner level, of M&A, corporate and financial transactions law and has worked for a number of years in European cross-border arrangements. He has been ranked throughout 2011-2019 as a leading Banking and Finance and M&A lawyer by Chambers Global and Europe, IFLR1000 and Legal 500. He has advised private equity and hedge funds, financial institutions and corporates in numerous financial and corporate transactions and is a specialist in structuring and negotiating several types of cross-border arrangements. Mika is also engaged in the work of combining financial law and regulation with game theory and computer science. He has been an associate editor of the Oxford Business Law Blog. He has also earlier acted as the Co-governor of the Oxford Financial Law Discussion Group.