A spirited response has arrived to my attack on private equity disclosure from Simon Walker, chief executive of the industry's trade group, the BVCA. His argument (below) is that the failings identified in a review of the disclosure process were largely technical.
I suppose either this stuff matters or it doesn't. If it's just technical box-ticking then one has to question the validity of the exercise in the first place. If it's over-zealous monitoring by the review then I suppose that, rather than our reporting of it, is most likely to be the disincentive to genuine tranparency.
For what it's worth, I think details such as confirming the independence or otherwise of a company director are quite important. It also seems to me that if private equity companies really took compliance seriously they have more than enough lawyers to make sure they can manage to meet guidelines drawn up by their own industry. I also wonder what proportion of the 80% of transactions are accounted for by the seven that failed to comply satisfactorily?
Anyway, read it and see what you think:
Dan:
I try not to grizzle but I do think your blog about Mike Rake's analysis of compliance with the disclosure regime is less than fair, and a disincentive to the genuine transparency of the Guidelines Review Group.
Your line "only half the companies...have met the new disclosure rules" refers to the fact that in an entirely new reporting process, without precedents, half of all companies complied to all requirements in full without any guidance or input from the monitoring group.
The initial failures you cite are almost entirely technical: for example, a portfolio company not noting that a director who is the senior partner of its owner was in fact representing that buyout house. Another company specified that it contributed to a particular charity, but failed to specify how much. Two others outlined corporate priorities but failed to describe them as KPIs. It's hardly surprising that some organisations made trivial errors in their first-ever public reports: what is important is that these mistakes were corrected. After advice all have amended or are changing their websites to achieve full compliance.
The fact that all but seven companies did meet the social and community reporting requirements seems to me quite creditable given that this is a year ahead of listed companies doing so and in the absence of any precedent. No company declined to report on these issues and their inadequacies - while they need to be addressed – are hardly earth-shattering.
And although only a numerical small fraction of the industry may be covered by the guidelines, that "small fraction" accounts for well over 80% of private equity transactions by value. It hardly makes sense to impose the transparency requirements of KKR or Permira on BVCA members like Derbyshire First Investments, with funds under management of £1.5 million, or Birmingham Technology Venture Capital, with £370,000.
Far from being arrogant, we've published in full a warts-and-all critique of the first year of the disclosure regime in order to evolve best practice. The Rake Committee (which includes a former senior Communications Workers Union official) describes the results as encouraging and speaks about a high level of support for and commitment to the guidelines. Nonetheless, I think we can do better this coming year, and we're determined to do so.
Simon Walker
Chief Executive
BVCA- The British Private Equity and Venture Capital Association
