What LPs Really Look For in Compliance

Panels on compliance often cover familiar ground: regulatory obligations, policy frameworks, and the operational realities of managing risk across jurisdictions. But at the Private Funds Compliance Operations Forum last week, the conversation took a more candid turn. 

Under Chatham House rules, the panel explored a question that is becoming central to private markets: what distinguishes a “good” compliance programme from a “great” one in the eyes of institutional investors?

The answer, perhaps unsurprisingly, was less about structure and more about intent. LPs are scrutinising not only the controls a firm has in place, but also the way those controls are implemented within the organisation and the confidence they provide in day-to-day decision-making.

Several themes stood out.

LPs are increasingly using compliance as a proxy for organisational integrity

A recurring point was that LPs are no longer treating compliance as a hygiene factor. It has become part of the qualitative assessment of a manager’s overall credibility. When LPs decline to commit capital on compliance grounds, the issues are rarely obscure. They tend to fall into recognisable patterns:

• Under-resourced compliance teams relative to the scale or complexity of the platform

• Instability in senior compliance roles, particularly high turnover in the CCO seat

• Dual-hatted compliance leadership, where individuals hold both commercial and supervisory responsibilities

• Generic, templated policy frameworks raise questions about the firm’s real operating environment

These signals raise concerns not just about process, but about culture. LPs are looking for evidence that the organisation has made a deliberate choice to prioritise compliance and has invested accordingly. They are not looking for perfection. They are looking for seriousness.

Culture is observable long before diligence begins

One of the strongest threads of the discussion was that “culture of compliance” is not an abstract concept. It shows up in behaviours and structures that are easy to see:

• Senior leadership speaks about compliance with the same clarity and frequency as performance

• Compliance has a standing role in key committees and is visible in firm-wide communication

• Questions and concerns are raised early and informally, before they escalate into issues

• Regulatory developments are treated as shared organisational responsibilities, not back-office noise

Physical proximity also plays a critical role. Compliance teams embedded with investment and operational groups pick up early signals - questions, uncertainties, instinctive concerns - that never appear in formal reporting channels. When compliance is physically and culturally separated from the front office, those early escalations vanish. The result is slower decision-making, less pragmatism, and more late-stage intervention.

Deal teams are not resisting compliance - they are resisting ambiguity

A striking theme was the way deal dynamics reveal the strength of a firm’s compliance culture. The tension is familiar: new AML or KYC requirements arrive, and deal teams worry about friction with borrowers or intermediaries, or that it will just slow deals down.

What emerged from the conversation is that this tension is not primarily about process. It is about trust. Deal teams work far more effectively with compliance when they have seen:

• Pragmatism in previous transactions

• Clear, timely guidance during regulatory change

• A willingness to adapt controls that are no longer fit for purpose

Where those relationships exist, compliance is consulted early, and the process moves faster as a result. Where they do not, compliance is brought in at the final stages—precisely when there is the least room for judgment or creativity. The result is the opposite of what deal teams want: delays, escalations and avoidable friction.

In short, compliance speed is largely a function of compliance credibility. Good compliance moves quickly.

Resourcing remains a decisive signal to LPs

One of the most unambiguous red flags discussed was team size. LPs recognise that private markets strategies are complex, cross-border and fast moving. They understand that firms grow quickly. What gives them pause is the mismatch between that complexity and the resources allocated to oversee it.

A multi-strategy platform with a compliance team that could fit into a single meeting room does not convey confidence. LPs interpret this not as cost discipline but as a lack of internal alignment on risk. In several cases discussed, resourcing alone was enough to stop an allocation.

Resourcing is not an operational detail. It is a statement of priorities—and LPs read it as such.

Compliance is increasingly recognised as a competitive advantage

An encouraging theme was the growing recognition that a strong compliance framework can support, not hinder, commercial success. When a firm can show that issues are surfaced early, that senior leaders reinforce expectations, and that compliance is embedded across teams, LPs see that as part of the manager’s overall risk discipline.

For GPs, this is becoming an important component of investor communication. Articulating how compliance supports consistency, transparency and operational control is now an expected part of the story. Deal teams respond better when they understand how these disciplines protect their ability to raise capital.

Where Avantia’s perspective aligns

The themes raised on the panel align closely with what we see across our own work in AML, KYC and compliance operations. Investors are making sharper distinctions between firms that have policies and firms that have built the capability to apply them consistently. Those distinctions increasingly influence capital allocation.

As regulation evolves and investor expectations rise, firms that right-size compliance by combining internal oversight with expert external partners, not simply treating it as a tick box exercise, are finding themselves better positioned with LPs. And for GPs seeking to benchmark their approach against what investors are actually prioritising, these conversations offer a clear direction of travel.