UK: Walker guidelines on private equity - update

The UK's Financial Times newspaper has published an interview with Sir Michael Rake, chairman of the Walker Guidelines Monitoring Group. In the course of the interview it is noted that 32 private equity firms (list here) and 55 portfolio companies (list here) have committed to comply with the Walker Recommendations. In addition, it is noted that Sir Michael:

...is encouraged by the enthusiastic response eight months after Sir David Walker, the City grandee, unveiled the voluntary guidelines he drew up for the British Private Equity and Venture Capital Association (BVCA). Since then, about a dozen private equity firms – including Apax Partners, Terra Firma, Permira and Cinven – have published annual reviews, giving details of their senior managers, investors, strategies and portfolio companies. “The reports are worth looking at,” says Sir Michael. “They see the business benefits of doing it. There is nothing to fear from transparency and the story they have to tell is generally a good one; therefore why not tell it?” 

In addition, large portfolio companies, such as Alliance Boots, the pharmacy chain, and Gala Coral, the betting and casinos group, have published public company-style annual reports. By the end of the year, Sir Michael plans to report back on how the rules have been adopted by relevant portfolio companies".

Denmark: private equity and transparency

The Danish Venture Capital and Private Equity Association has published "Active ownership and transparency in private equity funds: guidelines for responsible ownership and good corporate governance". The guidelines, which operate on the 'comply or explain' basis, contain rules governing the disclosure of information to supplement the requirements, where relevant, of the Danish Financial Statements Act.  In the report it is stated:

...it has to be recognised that today’s private equity funds own companies that may be of broad interest to society. These may be companies that are important for infrastructure or play a major role in the local area. They may also be companies that employ large numbers of people. In addition, many investors in private equity funds are pension funds, whose most important stakeholders are pension savers – typically ordinary salary earners. The general public may therefore have an interest in gaining insight into how a private equity fund works and creates value. This is the background to why these guidelines specify a number of areas where private equity funds and their portfolio companies should publish information.

According to a report in the Financial Times newspaper:

Denmark has leapfrogged the UK and adopted the most far-reaching guidelines to improve the transparency of private equity funds. The new voluntary code ... is designed to rehabilitate the reputation of private equity in Denmark, but will also increase pressure on the industry in the rest of Europe to follow suit to avert the threat of national or EU imposed rules. The UK and Sweden have already published voluntary guidelines to try to head off such rules but the DVCA's proposals go much further by covering 80 per cent of private equity-owned companies - compared to just the 100 largest under the UK guidelines - and requiring a far higher level of disclosure."

For further information see:

DVCPEA | Guidelines | Financial Times report | 

Japan: activist shareholder secures board's removal

The Economist and Financial Times have reported what is said to be a first for activist shareholders in Japan.  According to the FT's report (online, May 29):

Shareholders led by Warren Lichtenstein’s Steel Partners on Thursday ousted the president and board members of Aderans, a Japanese wigmaker, the first time activist investors have successfully expelled management in a country often criticised for ignoring their wishes. The event is something of a coup for US-based Steel Partners, which owns 26.7 per cent of Aderans. The wigmaker is just one of nearly 30 Japanese companies the private equity group has been pushing to improve investor returns and corporate governance"

The Economist report is available here and the Financial Times report can be found here.  In this earlier post, proposals for the reform of corporate governance in Japan were noted. 

Europe: greater regulation of hedge funds and private equity?

A meeting of the European Parliament's Committee on Economic and Monetary Affairs takes place later today. On the agenda is a draft report by Poul Nyrup Rasmussen MEP (a former prime minister of Denmark) in which he calls for (a) greater regulation of hedge funds and private equity and (b) the European Commission to submit proposals to the European Parliament in respect of (a). Amongst the more specific recommendations are:

• The establishment of a European supervisor covering all financial services sectors (capital markets, securities, insurance and banking)
  
• The creation of a European Union framework for the registration and authorisation of entities that control the investment of hedge funds or private equity

It's very unlikely that the Commission will show much enthusiasm.  In a speech delivered earlier this year, Internal Market Commissioner McCreevy made his position clear: "I am not in favour of heavy handed regulation ... I do not see an obvious market failure at EU level".

UK: Walker Guidelines Monitoring Group publishes second report

The Guidelines Monitoring Group has published its second report concerning compliance with the Walker Guidelines on transparency within the private equity industry: see here (pdf). The Group found the following (to quote directly from the report):

There continues to be a high level of commitment to the Guidelines from the private equity industry. In particular, the disclosures made by the private equity firms themselves have improved significantly and all private equity firms covered by the Guidelines met all the requirements without exception. A substantial majority of the portfolio companies reviewed this year made good or acceptable disclosures with only a limited number of exceptions. Overall, the quality of the disclosures made by the sample of portfolio companies reviewed this year is similar to the quality of disclosure found in last year’s review. Similar to last year, the quality of the disclosures varies significantly within the sample with some firms going much further than the requirements".

UK: Walker Report on Private Equity published

At the end of November 2007, Sir David Walker published his report titled "Guidelines for Disclosure and Transparency in Private Equity". This contains guidelines for enhanced disclosure by private equity firms. Amongst the recommendations are the following:

(a) Private equity firms should publish either in the form of an annual review or through regular updating of its website:

- a description of its own structure and investment approach and of the UK companies in its portfolio, an indication of the leadership of the firm in the UK and confirmation that arrangements are in place to deal with conflicts of interest
- a commitment to conform to the guidelines on a comply or explain basis
- a categorisation of its limited partners by geography and by type

(b) A portfolio company should publish its annual report and accounts on its website within six months of the year-end and include:

- the identity of the private equity fund or funds that own the company, the senior managers or advisers who have oversight of the fund or funds, and detail on the composition of its board
- a business review that substantially conforms to the provisions of section 417 of the Companies Act 2006, including sub-section 5 that otherwise applies only to quoted companies, calling for an indication of main trends and factors likely to affect the future development, performance and position of the company’s business and to include information on the company’s employees, environmental matters and social and community issues.

A copy of the report - which provides definitions of a "private equity firm" and "portfolio firm" - is available here.

Europe: Parliament votes on hedge funds and private equity

Members of the European Parliament yesterday voted to make a formal request to the European Commission to develop legislation concerning the regulation of financial markets, hedge funds and private equity investors. Further information is available in the European Parliament's press release, in which it is stated: 

Parliament wants more transparency on voting by hedge funds in general meetings, calling for exploration of whether intermediaries should be obliged to enable original shareholders to participate actively in voting. It wants to see a code of practice on how to rebalance corporate governance structures to reinforce a long-term orientation. MEPs ask for an investigation of securities lending and voting on borrowed shares. It also asks whether reporting requirements should apply to cooperation agreements between several shareholders".

Notes:

[1] The texts adopted by the European Parliament are available here and here (these links were added on 25 September)

[2] On 22 September, Internal Market Commissioner McCreevy delivered a short speech addressing some of the issues addressed by the European Parliament, particularly concerning hedge funds and private equity.

[3] A short report on the European Parliament's vote, from the International Herald Tribune, is available here.