RP Annual Compliance Training November 2018



  • Compliance 101: Fiduciary Duty
  • Compliance Manual
  • Key Compliance Policies
    • Portfolio Management
    • Valuation
    • Custody
    • Privacy & Information Security
    • Advertising & Marketing
    • Other Items of Note
  • Code of Ethics
  • Final Thoughts
  • Questions

Video: starts 6 min 30 seconds in

Compliance 101: Fiduciary Duty

Compliance 101

Compliance 101

  • Fiduciary duty
    • Obligation to always act in the best interest of the client
    • Generally reflected as an anti-fraud provision in Section 206 of the Investment Advisers Act (IA Act)
  • Regulatory requirement
    • Under Section 206, Rule 206(4)-7 sets forth the requirement for all registered advisers to implement a compliance program (known as the Compliance Rule)
  • Mitigates risk and protects Rubenstein Partners
    • Regulatory risk
    • Reputational risk
    • Misappropriation/Theft
    • Legal Action

Fiduciary Duty - Expanded

  • Rubenstein Partners, as a fiduciary, owes each client its undivided loyalty and holds itself to high standards of fairness in all such matters
  • The interest of your clients and investors must be placed first at all times
    • Above the interest of individual employees
    • Above the interest of Rubenstein Partners
  • No employee should take inappropriate advantage of their position

All transactions (firm and personal) must be conducted in such a manner so as to avoid any actual or potential conflict of interest or any abuse of an individual’s position of trust and responsibility.

Fill in the blanks with the appropriate definition of fiduciary duty.

The interest of your clients and investors must be placed above 

Compliance Manual

Compliance Manual

Rubenstein Partners Compliance Manual

  • Guiding document that sets forth how Rubenstein Partners will prevent, detect, and remediate violations of the federal securities laws
    • Providers overview of the firm's fiduciary duty to clients
    • Describes key elements of Rubenstein Partners Compliance Program
    • For investment related activities and operations, it sets forth:
      • Regulatory requirement
      • Firm policy
      • Responsible party for implementing policy
      • Procedures for implementing policy
  • Located in J:corporate communications\compliance-public and available on PTCC

Which of the following is not included in the Compliance Manual?

  • Overview of fiduciary duty
  • Responsible party for implementing policy
  • Key elements of the compliance program
  • Cases on federal compliance issues

Key Compliance Policies

Portfolio Management Practices

  • Adhere to guidelines and restrictions
    • Investments must be made in accordance with investment objectives, guidelines, and restrictions as specified in its client agreements
  • Allocation of Investment Opportunities
    • Allocations must be made on a fair and equitable basis consistent with its fiduciary obligations and in accordance with the applicable client agreements
  • Investment Committee is responsible for suitability and allocation decisions
  • Compliance reviews to ensure allocation is fair and equitable

Regulatory Reference: Fiduciary duty and Section 206

Valuation of Client Assets

  • Real Estate Assets
    • Valuation Committee is responsible for overseeing the valuation process
    • Internal and external (if appropriate) valuations of a client's assets in accordance with the applicable client agreement
    • CCO (or his designee) will periodically review valuations and fee calculations

Regulatory Reference: Fiduciary duty and Section 206


  • Custody of client assets
    • Generally Rubenstein Partners is deemed to have custody client assets (as GP of a private fund)
  • Reliance on the annual audit exception
    • Each Rubenstein Partners private fund is audited annually by an independent, public accountant, and the audited financial statements are distributed to all of its investors within 120 days of the end of the funds' fiscal year (Note: one legacy fund may utilize the "surprise audit")
  • Inadvertent receipt of client assets must be reported to the CCO for proper resolution (must be returned to sender with instructions)

Regulatory Reference: Rule 206(4)-2

Privacy Practices & Information Security

  • Everyone has a responsibility to safeguard client and investor information
  • Share investor information only on a need-to-know basis (only legitimate business reasons)
  • Do not email any investors' personal information to any external email address without explicit permission from the CCO
  • Rubenstein Partners has adopted a "Clean Desk Policy"
    • Never allow client or investor information on public display
  • Be careful discussing business in public areas and situations.

Regulatory Reference: Regulation S-P

Advertising and Marketing

  • All advertising or marketing materials shall be preapproved by the CCO (or designee) before use (i.e., don't use them without approval and then ask for forgiveness)
    • New flipbook/pitch book or significant changes to current version
    • Responses to DDQs and RFPs
    • PPM introductory letters
    • Investor updates and performance reports
    • Substantive or sensitive fund-related emails
  • No testimonials
  • Performance results or comparisons must not be misleading
  • Communications with Media and Public
    • Only designated personnel may communicate with the media regarding Rubenstein Partners or its business and such communications must be reviewed by the CCO
    • Always avoid discussing current fundraising activities in any public forum
    • Participation at industry conference must be pre-approved by the CCO
    • Submit presentations for review by the CCO

Regulatory Reference: Rule 206(4)-1

Other Items of Note

  • Expense Allocations (still Big trouble for PE firms)
    • Adequacy of expense allocation framework, policy, procedures, and guidelines
    • Oversight of the expense allocation process and methodologies
    • Compliance with the expense allocation provisions of the LPA and PPM
    • Consistency of application of policies, methodologies and calculation across the firm and among funds
    • Classification of expenses (management company vs. funds)
    • Eligibility of expenses to be allocated to and among funds
    • Accuracy of expense allocation calculations
    • Disclosure of expense allocation practices
    • Books and records to support expense allocation calculations
  • Expense Allocations (and what gets them into Big trouble?)
    • Monitoring expenses - ongoing monitoring fees of portfolio companies, acceleration of monitoring fees upon exit of investment, and termination fees
    • Overhead expenses - administrative expenses, rent expense, salaries, incentive compensation
    • Broken Deal expenses - legal and consulting expenses, due diligence expenses
    • Travel expenses and overtime meals - private and chartered air travel
    • Miscellaneous expenses
    • Related service provider expenses - fund administration expenses
    • Senior Advisers - compensation arrangements
    • Shifting of expenses
  • Books and Records
    • Not to be removed for storage outside of Rubenstein Partners without prior approval of the CCO
  • Complaints
    • Investor complaints must be promptly reported to the CCO
  • Email
    • All Rubenstein Partners email is retained and subject to review by CCO
    • Also emails are subject to production to the SEC
    • Do not use personal email for firm business

Who are the key person(s) involved in the firm's compliance policies? (select all that apply)

  • CCO
  • Valuation Committee
  • Custody Committee
  • Investment Committee

What is the "Clean Desk" policy?

  • Removing books and records for storage outside of Rubenstein Partners with prior approval of the CCO
  • Compliance with the expense allocation provisions of the LPA and PPM
  • Never allow client or investor information on public display

Code of Ethics

Code of Ethics 101

  • Rubenstein Partners is required by Federal Securities Law to establish and uphold a Code of Ethics (the “Code”) 
  • The Code sets forth the standard of conduct for all Rubenstein Partners employees 
  • Upon hire and at least annually thereafter, Rubenstein Partners employees must certify their understanding of the Code and their agreement to comply with the Code
  • Rubenstein Partners is committed to preserving its established and unquestioned reputation for integrity and professionalism 
  • Preserving this integrity demands the continuing alertness of everyone 
  • Always conduct business activities and transactions with the highest level of integrity and ethical standards and in accordance with all applicable local, state and federal laws
  • Adhere to high ethical standards with respect to any actual or potential conflicts of interest with clients

All transactions (firm and personal) must be conducted in such a manner so as to avoid any actual or potential conflict of interest or any abuse of an individual’s position of trust and responsibility. 

Conflict of Interest

  • What is a conflict of interest? 
    • A conflict can be created by any activity or relationship in which an adviser’s interests competes with the interests of its clients 
    • A broad consideration of what is the right thing to do as a matter of law and ethical decision-making 
  • What does it look like? 
    • A scenario where a person or firm has an incentive to serve one interest at the expense of another interest or obligation 
      • Serving the interest of the firm over that of a client, or
      • Serving the interest of one client over other clients, or
      • An employee or group of employees serving their own interests over those of the firm or its clients.
  • How does a conflict arise? 
    • Cultural pressure (poor tone at the top) 
    • Misaligned financial incentives 
    • Herd behavior (everybody else is doing it…) 
    • Personal weaknesses (vanity, self-delusion or poor judgment)

Even people who profess to be ethical and clear-thinking

can be led astray.

Which of the following are reasons why a conflict of interest arises?

  • Herd behavior
  • Strict guidelines
  • Cultural pressure
  • Misaligned financial incentives
  • Payroll fraud

Key Code of Ethics Requirements

  • Outside Employment and other Business Activities 
    • Required to disclose and receive preapproval for outside employment and other business activities 
    • Outside Employment 
      • Generally discouraged 
      • Pre-clearance required in writing from CCO (whether outside activity is paid or unpaid) 
    • Serving on a Board or as an Officer 
      • Pre-clearance required in writing from CCO 
        • Does not apply to affiliates of Rubenstein Partners, non-profits, or charitable foundations 
      • Any compensation received for serving on a Rubenstein Partners business-related board must be provided by Rubenstein Partners 
  • Political Activities and Contributions 
    • Permitted to engage in personal political activities, as long as independent from Rubenstein Partners and such activities do not create conflict of interest with Rubenstein Partners business 
    • Pre-clearance is required for all political contributions (to a campaign, a candidate or a public official) at any level of government (federal, state, county, city), to be made directly or indirectly, by you or by your spouse or domestic partner, including: 
      • PAC and party contributions or solicitations 
      • Hosting of campaign events 
      • Provision of any services or products on behalf of a political candidate in return for payment

Regulatory Reference: Rule 206(4)-5

  • Gifts and Entertainment 
    • Based on the dollar amount, certain gift and entertainment expenses require reporting and/or pre-clearance. 
    • Everyone should use sound judgment to avoid any gifts, gratuities or other items of value that would place Rubenstein Partners in a difficult, embarrassing or conflicting situation with its advisory clients or their investors.

  • Social Networking Sites Policy 
    • LinkedIn 
      • Permitted to indicate employment with Rubenstein Partners and position 
      • Refrain from disclosing any information that could harm Rubenstein Partners, misrepresent job title or position, or be considered negative comments 
      • Turn Off LinkedIn Endorsements – could be considered a  “Testimonial”
    • Other Social Media/Social Network Sites 
      • Not permitted to mention Rubenstein Partners nor your position with Rubenstein Partners
      • No disclosure of Rubenstein Partners-related information 
      • No links to the Rubenstein Partners website
    • Pertaining to ALL Social Media/Social Network Sites 
      • Not permitted to use email functions on social media sites for any business matters related to Rubenstein Partners without consent from CCO 
      • Not permitted to display link to Rubenstein Partners website or disclose Rubenstein Partners website 
        • Considered “testimonial”
  • Securities Trading and Personal Trading Policy 
    • Covered Accounts 
      • All accounts are ‘Covered Accounts,’ except for those in which neither the access person or supervised person has any direct or indirect influence or control (a true “managed” account)
      • Applies to related parties, which includes access person or supervised person’s spouse, domestic partner, person living in same household (full list available in the Code of Ethics)
      • Report the covered accounts through PTCC
    • Holdings Reports 
      • Account statement for each Covered Account due within 10 days of hire 
      • Thereafter, account statements are due annually on a date selected by CCO, if not available directly via PTCC

Regulatory Reference: Rule 204A-1

  • Pre-Clearance of Trades (Equities) 
    • Rubenstein Partners maintains a restricted list of issuers, and you must be granted pre-clearance via PTCC prior to trading 
    • Do not trade until you receive permission from PTCC 
    • Once granted permission, you have until the end of the following business day to execute the trade. If you need more time or miss the window, pre-clear again! 
    • You are permitted to execute a trade, provided that you do not otherwise have material nonpublic information concerning the issuer or the securities 
    • IPOs and limited offerings must be pre-approved by the CCO 
  • Holding Period - 30-day minimum holding period
  • Real Estate Investments 
    • Without the prior approval of the CCO, you may not participate in an investment that has been evaluated by Rubenstein Partners as a possible investment for a client/fund, whether or not Rubenstein Partners elects to recommend the investment to a client/fund.
  • Insider Trading 
    • It is illegal to conduct or facilitate insider trading 
    • SEC continually looks for such activity and actively pursues wrongdoers 
    • Insider trading, a term not defined in the federal securities laws, is commonly viewed as the purchase or sale of a security of any issuer: 
      • on the basis of material non-public information about the security or issuer; and 
      • in breach of a duty of trust or confidence that is owed directly, or indirectly, to (1) the issuer of the security, (2) the shareholders of the issuer or (3) any person who is the source of the material non-public information
    • If you are uncertain about a piece of information and whether it could be considered “material” or “non-public,” consult with the CCO or General Counsel 
    • If you knowingly receive inside information or think you may have because of the timing, the content, or the source, notify the CCO immediately 
    • Restricted List 
      • NEVER okay to trade a restricted list issuer/security 
      • Restricted list is used to keep track of companies about which Rubenstein Partners has actual or potential “inside” information

Regulatory Reference: Section 204A

Match the appropriate term with its definition.

  • Covered Accounts
    All accounts except for those in which neither the access person or supervised person has any direct or indirect influence or control (a true “managed” account)
  • Holdings Reports
    Account statement due within 10 days of hire
  • Insider Trading
    Purchase or sale of a security of any issuer on the basis of material non-public information about the security or issuer and in breach of duty or trust

When do you need pre-clearance from the CCO?

  • Gifts under $250
  • Serving on board of a non-profit organization
  • Political contributions

Final Thoughts

Final Thoughts

  • In any situation where you are unsure about the application of Rubenstein Partners compliance expectations, or policies in the Compliance Manual and Code of Ethics, consult with the CCO or the General Counsel. 
  • Violations of the Compliance Manual and Code of Ethics will result in sanctions as appropriate, up to and including, written reprimand, suspension or dismissal.