If a private fund lends to a connected or affiliated company, is generic conflicts disclosure in the constitutive documents enough?

Why Circular 24EC46 addresses affiliate-loan disclosure

Circular 24EC46 (12 December 2024), Management and disclosure of conflicts of interest by fund managers, clarifies how fund managers should manage and disclose conflicts of interest. Press release 24PR164 announced the circular on the same date.

Section 12 addresses disclosure in constitutive documents. Pursuant to Code of Conduct paragraph 10.1 and Fund Manager Code of Conduct (FMCC) paragraph 1.5, specific disclosures of material interests and conflicts are required — covering the nature and source of conflicts, material interests of the manager and connected persons, potential risks, and mitigation steps.

Generic boilerplate is not proper disclosure

Where a material interest or conflict is involved, generic and non-specific conflicts disclosures in constitutive documents would not amount to proper disclosure.

The circular uses a loan-to-affiliate example: language stating that “future conflicts may arise” or similar boilerplate is not enough. Fund managers must provide specific pre-transaction disclosure covering:

• the affiliate counterparty;
• the loan amount;
• material interests of the manager and connected persons;
• risks of the conflicts and the loan; and
• the prescribed monitoring and mitigation mechanism.

Prevent, manage and monitor under FMCC 1.5

FMCC paragraph 1.5 sets a structured approach: prevent conflicts where possible, then manage and monitor those that cannot be prevented.

Where a conflict cannot be prevented, the circular’s support sections (paragraphs 9–11) emphasise alternatives such as arm’s-length terms and acting in the best interests of the fund. Paragraph 14 expects proper documentation of conflict management throughout the transaction lifecycle.

Code paragraph 10.1 requires fair treatment of clients — specific disclosure is part of ensuring investors can assess the material conflict before committing.

Practice boundaries

This Insight covers conflicts disclosure for affiliate loans under Circular 24EC46. It is distinct from:

• Disguised securities margin financing without Type 8 under Circular 18EC58 — a licensing-perimeter question, not the content of conflicts disclosure.
• Client asset controls such as repledge caps, standing-authority renewal, or client-money segregation — separate regulatory lanes.

Scope of this answer

This Insight summarises the SFC’s conflicts disclosure expectations for private-fund loans to affiliates under Circular 24EC46 section 12. It is not a full fund governance manual or offering-document drafting guide.