Want to participate in an IPO but the CEO is family friend. Ethical considerations?
I've been working as a Portfolio Analyst for a hedge fund since graduating with my MFE a while ago. I'm thinking of submitting a recommendation for a company IPO to the fund, but I'm a little reluctant to proceed since I heard of the company from family, who is also friends (not relatives) with the CEO. I won't disclose details but this is a cutting edge tech startup in a sub-sector I'm following closely.
I'm not pressured in any way to support the IPO and I still fully intend to evaluate the company on its own merits before submitting a recommendation. I currently have no clue about any non-public information on the company either.
Would there be any ethical considerations in this case?
As long as you do your due diligence you should be fine. To be on the safe side, you could disclose the relationship to your manager and talk to your legal/compliance team to make sure you aren't violating company policy.
I don't know much about these things, but aren't personal relationships with C-levels a very legitimate and legal source of research leads for analysts in your field? As long as you're not using some sort of inside information, I don't see any ethical dilemmas here.
on a side note, your question sounds a lot like an Ethics case study from the CFA Institute haha.....
I agree with longcat.
Also, as for insider info- I believe it all comes down to whether or not anyone else (the public) could access the same information you have. You may be more aware of it than anyone else but the information must be "public".
Some other things that may come up....
Suitibility - At the risk of stating the obvious you should be sure that in your due dilligence you determine that this particular security is suitable for your fund. Are it's risk/return characteristics consistent with the guidlines in the fund's investment policy statement? If not, this may set off some warning bells. Since this is a tech startup in a subsector you are closely following, it probably wont be an issue.
Conflicts of Interest - You should be very careful of any attempts from this family friend to cloud your objectiveness by giving you gifts, wining and dining you, etc... even if these were normal activities before you considered recommending his company.
Just some other things to consider.
If all this is true, you should be smart enough to not post this crap and ask for ethical advice on a website. If any regulatory agency happens to surf the site and check IP adresses you will be put in the radar. Don't be stupid, you already know what to do.
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