Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, March 15, 2007

Private equity – greater transparency on the way?

It has been a big, high profile month for private equity. And as the size of the industry grows, it is coming under increasing scrutiny – in a way that perhaps stock exchange listed companies have been over recent years.

First the politics. Against a background of emotive words such as “asset stripping” and 'casino capitalism' from some politicians, others have been springing to the defence of private equity. The Shadow Chancellor hailed the sector as a “beacon of excellence” in a recent speech to the British Venture Capital Association (BVCA). He noted that the real winners from private equity were the millions of people with pension funds invested in the sector.

The stakes have been raised as private equity has made increasingly high profile incursions into listed companies. Household names like Birds Eye and the AA, and very recently Sainsbury and Boots, now either belong to or are the targets of private equity. And in the US, the property sector has seen huge activity in recent months including at Trizec, Bedford Property Investors, Gable Residential Trust and Centerpoint Properties.

However, as the profile of the industry grows, so does concern about its transparency. The days of secrecy need to be ended.

So many have welcomed the announcement last week by the BVCA that it will form a working group under the chairmanship of Sir David Walker to examine ways in which levels of disclosure in companies backed by the UK private equity industry could be improved.

The areas it will explore will be very familiar to listed companies.
Ø Appropriate levels of narrative and financial reporting.
Ø The extent to which private equity companies should increase the level of reporting.
Ø The timing of any increased reporting for PE-backed companies.
Ø Clarity and consistency of practice with regard to valuation methodology, its verification and disclosure to investors of returns and fees.

Whilst not quite a mirror of the FSA’s new Transparency Rules covering listed companies, many will find it more of a level playing field. The new proposed guidelines will be published in the autumn.

Meanwhile on the other side of the Atlantic, more consistency and transparency in private equity valuations is promised. The Private Equity Industry Guidelines Group has updated its U.S. Private Equity Valuation Guidelines. "Private Equity Investments by their nature are difficult to monitor," said PEIGG member Kevin Delbridge. "To evaluate manager performance on an interim basis, to make manager selections and to make asset allocation decisions, we need results reported on a common basis. Fair Value as outlined in the Guidelines, provides that consistent basis."

So progress in achieving more transparency. But still a long way from the compliance required from a listed company.


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