Investors, including pension funds, will benefit from a much greater level of disclosure from private equity firms following proposals published today by the Walker Review.
In its 'Guidelines for Disclosure and Transparency in Private Equity', the working party calls for enhanced reporting by private equity funds regarding companies in their portfolios.
The review aims to enhance the disclosure of funds that invest in major UK companies; defined as those worth over £300m who conduct 50% of their business in the UK and employ at least 1,000 full-time UK staff.
Funds with major UK companies in their portfolios will now have to follow the European Venture Capital Association’s (EVCA) guidelines on disclosure of existing portfolio companies. These include giving a summary of each investment, the limited partner’s interest in the fund and details of any fees charged by a fund's management.
Private equity funds will also be required to produce valuations of their portfolio companies, using the valuation guidelines provided by either the International Private Equity and Venture Capital Board, or the Private Equity Industry Guidelines Group.
As private equity assets are not traded on the stock market, it can be difficult for investors to assess the worth of a fund’s assets at a given time and it is hoped this move will help keep investors better informed.
However, the report also called for enhanced disclosure of the type of investors in a private equity fund which will be published in an annual review.
Investors will be broken down into UK and overseas investors and also by type of institution within broad categories such as pension funds, insurance companies and private individuals. They will not be individually named in the annual review.
The Association of Investment Companies (AIC) welcomed the guidelines, but warned that private equity should not be singled out for greater disclosure.
Daniel Godfrey, director general of the AIC, says: “This report is a sensible model for the responsible ownership of private companies. It is right that owners and managers of large private companies should recognise the legitimate interests of a broader range of stakeholders; from employees and unions, to customers, suppliers and communities.”
“During the consultation, the AIC called for increased disclosure, on a “comply or explain” basis, for all large private companies regardless of their ownership structure. We see no reason why companies owned by private equity should be singled out for special attention.”
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