On 20 November 2007, Sir David Walker published his report on disclosure and transparency in the UK private equity industry. The report, which was commissioned by the British Venture Capital Association in February 2007, follows the consultation document published in July 2007. It sets out various guidelines for enhancing disclosure by private equity firms (which are authorised by the FSA and invest in the UK) and their large UK portfolio companies. In addition, the report makes certain recommendations to the BVCA in respect of its industry-wide data gathering, processing and reporting function and for the establishment by it of a group to review and monitor compliance with the guidelines.
Whilst compliance with the guidelines is voluntary, the report states that the industry should adopt a "comply or explain" approach. The main guidelines are summarised below.
Guidelines for enhanced disclosure by UK portfolio companies
Portfolio companies to whom the guidelines apply should include, as part of their audited annual reports and accounts, the following information:
- the identity of the private equity fund that owns the company and the senior executives in the UK who have oversight of the company on behalf of the fund;
- a report on the composition of the board of the company;
- a business review of the type currently produced by quoted companies; and
- financial review, which should cover risk management objectives and policies.
The audited annual report and accounts of the portfolio company should also be readily accessible on the company's website and should be made available no more than six months after the company's year-end. A summary mid-year update giving a brief account of major developments in the company should be placed on the company's website no more than three months after the end of the mid-year.
The portfolio company should also provide the BVCA with certain information to enable the BVCA to fulfil the enhanced data gathering role recommended by the report.
Guidelines for enhanced disclosure by private equity firms
A private equity firm to whom the guidelines apply should publish an annual review accessible on its website or ensure regular updating of its website to communicate:
- a description of the firm's structure, history and investment approach;
- a description of the UK portfolio companies in the firm's portfolio;
- an indication of the leadership of the firm in the UK, identifying the most senior members of the management or advisory teams;
- a categorisation of the limited partners in the fund or funds that invest or have a designated capability to invest in companies that would be UK portfolio companies; and
- a commitment to conform to the guidelines on a "comply or explain" basis and to promote conformity on the part of the UK portfolio companies owned by its fund or funds.
A private equity firm should follow established guidelines when reporting to its limited partners and valuing investments in its funds and should also commit to ensuring effective communication with portfolio company employees, particularly at times of strategic change.
A private equity firm should also provide data to the BVCA, in support of its enhanced data gathering, processing and reporting role.
A copy of the Walker report can be found here.