Introduction

The Private Equity Reporting Group (formerly the Walker Guidelines Monitoring Group) has published its eighth annual report on disclosure and transparency practices in private equity, which assesses conformity with the Walker Guidelines. The report notes that 2015 was the first reporting year in which many portfolio companies were required to comply with new reporting obligations following changes to the Guidelines for Disclosure and Transparency in Private Equity in July 2014, the first substantial changes since the Guidelines were introduced in November 2007. As previously reported in Equity Issues, new requirements added to the Guidelines include disclosure on the company’s business model and replaced the business review with the strategic report requirement.

Report findings

The Group's key findings, as set out in the report, include the following:

  • 95% of those portfolio companies reviewed achieved a good or excellent level of compliance as compared to 100% compliance in 2014. The Group attributes this fall to a combination of: (a) the Guidelines including new requirements introduced in July 2014 which can take time to implement; and (b) improvements in the quality of reporting within the FTSE 350, which is the benchmark for judging compliance;
  • the number of private equity firms managing or advising funds which owned the portfolio companies within scope increased by six to 65;
  • only 19 portfolio companies made the full audited report and accounts or an alternative report available on their websites, with some believing that access to reports at Companies House would suffice. The Group states that it continues to reinforce the message that accounts should be readily accessible on a company’s website;
  • only eight of the portfolio companies included a statement of compliance with new requirements under the Guidelines and none of the sampled companies adopted an 'explain' approach within the 'comply or explain' model;
  • portfolio companies have improved the quality of disclosure on key performance indicators, trends and factors affecting the future of the company, environmental matters and social and community issues;
  • the quality of disclosure in relation to the identity of its private equity firm, board composition, business model and gender diversity was weaker this year compared to increasing standards seen in the FTSE 350 and amendments to the Guidelines; and
  • the Group reviewed the websites and/or annual reports of all private equity firms covered by the Guidelines to assess compliance with applicable disclosure obligations relating to their own activities and members of the BVCA met the requirements or were in the process of updating them at the time of publication of the report. 

Next steps

The Group will continue to provide feedback to firms and portfolio companies to raise the levels of disclosure and adherence to the Guidelines and to promote these as standard industry practice. The Group and BVCA are also monitoring how best to assess compliance with the disclosure requirements for private equity firms and this will continue to be an area of focus.

The Group’s plan for 2016 includes:

  • supporting the industry when implementing the amended Guidelines; the Group’s Good Practice Guide and other reports published by the Financial Reporting Council (FRC) should assist firms and portfolio companies when preparing annual reports;
  • monitoring changes in narrative reporting, such as the FRC’s statements implementing the recommendations arising from the Sharman Panel of Inquiry into going concern and liquidity risk;
  • continuing to review the enterprise value thresholds in accordance with developing European legislation and regulation;
  • reviewing the quality of disclosures published by private equity firms about their own activities; and
  • monitoring whether portfolio companies are publishing their annual reports on a timely basis and within six months of year end as required by the Guidelines.