UK industry report tells buyout firms to open up

Private equity firms should disclose more details about themselves and the companies they acquire, but there is no need for greater industry regulation, a report commissioned by Britain's buyout industry found.

David Walker, a former chairman of Morgan Stanley International, was appointed in March to look at ways of improving disclosure as the industry battles to improve its image and to silence a growing chorus of public and political criticism.

"Private equity needs to become more open," Mr Walker said in a 45-page interim report yesterday, outlining measures to deal with public suspicion of an industry that he said has come to be seen as "needlessly secretive".

But he added: "This review does not see the need for and does not recommend any changes in existing regulatory or legislative provisions on disclosure in the UK."

Mr Walker's voluntary code of conduct for the industry, an effort to head off calls for formal legislation, recommended that private-equity-owned companies that were once part of the FTSE 250 or have over 1,000 employees should publish annual reports and financial statements online five months ahead of a legal deadline.

Buyout firms should also publish an annual review identifying senior partners, detailing values and giving a broad indication of performance and types of investors, he said.

On an industry-wide basis, firms should provide information about the scale of funds raised, leverage levels and estimates of fee payments, the advisory group said.

Mr Walker estimated that 200 to 500 companies in private equity portfolios would be affected by his disclosure recommendations.

But he stopped short of recommending full disclosure of the identity of limited partners - investors in private equity firms - or how much private equity partners are paid.

He did recommend that firms take on outside board members, particularly to chair audit committees.

Buyout firms have been pushed into the spotlight in recent months after a multi-billion pound takeover spree that included household names such as pharmacy owner Alliance Boots.

Most of the debate in recent weeks has focused on the tax relief from the so-called carried interest earned by private equity partners on their investments. It is treated as capital gains and entitled to taper relief, which often reduces the rate to 10 per cent and lower, compared with 40 per cent tax on income.

But Mr Walker's four-month report sidestepped that dispute. The British Private Equity and Venture Capital Association, which commissioned the report, said it agreed with the need for transparency but called for a level playing field between private equity firms and other privately owned companies.

Britain's unions, some of the industry's most vocal critics, said, however, the report did little to answer their concerns involving tax, remuneration and the social impact of buyouts.

"This is not going to appease anybody. We are concerned about transparency, the social and economic effects, the effect on pensions, the UK economy and the tax issues," said Paul Maloney of union GMB. "This answers none of our questions. It's about as much use as a chocolate fireguard."

Mr Walker has said the voluntary guidelines in his report would be regularly reviewed by a board of trustees - the model followed by the Takeover Panel - and has said legislation should be a last resort if firms fail to comply.

The full report will be published in the autumn after a consultation period that ends on October 9.