Transparency suffers at UK PE-backed businesses

Large UK private equity portfolio companies must be more transparent regarding their gender diversity, compliance with human rights laws and future performance forecasts, according to new guidance from the Private Equity Reporting Group.

In total, the group identified five areas in which portfolio companies are failing to keep pace with the disclosure standards of FTSE 350 companies against which private equity is benchmarked. The extent to which directors have contributed to the success of the company and how wider market conditions will impact the business also need attention, it said.

The guidance, published earlier this month, follows the group’s annual report in December which found reporting standards among UK private equity companies dropped in 2016 and compliance with the Walker guidelines fell compared to a year earlier.

Compliance by companies covered by the guidelines fell seven percentage points to 88 percent, while just 57 percent of the portfolio companies reviewed achieved an overall good or excellent level of quality of disclosure – down from 95 percent in 2015.

One-fifth of companies had not published their audited report and accounts on their website at the time of the report, while even more had not been publishing their reports within six months of year-end. The group will start to name companies publicly that do not meet this requirement in next year’s report, it said.

The Walker guidelines, penned by David Walker at the request of the British Private Equity and Venture Capital Association, are a set of non-binding disclosure and transparency reporting recommendations established in 2007 that are designed to substantiate private equity’s contribution to the UK economy in terms of jobs growth and investment.

In addition to the enhanced disclosure requirements, the guidelines include requirements on data provision by private equity firms and portfolio companies to the BVCA and recommend adopting standards and guidelines on valuations and reporting to limited partners.

The Private Equity Reporting Group was established to monitor conformity with the guidelines, and to make recommendations to the BVCA for changes to the guidelines if needed.