28 February 2007

FT: UK urges transparency from private equity

Britain’s private equity groups are being told by the UK government that they should come forward with proposals that would lead to greater disclosure of their activities in an effort to boost public confidence in what they do.

In the first indication that the UK government believes some action may eventually be needed to allay concerns over private equity, Ed Balls, the City minister, has said he would welcome discussion with the industry on how its activities could be made more transparent.

Mr Balls – regarded as right-hand man to Gordon Brown, the likely next prime minister – told the Financial Times that the private equity industry played an important role in the UK economy and that it took long-term decisions about companies to a far greater degree than many commentators have suggested.

But he added: “I think there is a general view, and it is increasingly understood by the private equity world, that they do need greater transparency. Some of their approach to valuation has not been as clear as it could be.”

Mr Balls made clear that the government is not considering immediately imposing a raft of new regulations on the way the industry operates. Instead, he clearly wishes first to build a consensus with the industry.

Mr Balls ruled out introducing any change to tax breaks on debt interest – as some unions have demanded. On tax, he said: “We don’t distinguish between the quoted and unquoted sectors.”

However, he made clear that it was in the industry’s interests to agree with government on ways to enhance transparency and disclosure. “My message to private equity is that coming forward with proposals for greater transparency in the way they operate would be in the interests of their industry and the UK economy more generally,” he said. His comments come after a spate of attacks on private equity companies from Labour MPs and trade unions. The storm in the UK has been sufficiently animated to have prompted Damon Buffini, managing partner of Permira, Europe’s biggest private equity group, to acknowledge the need for greater disclosure.

Such sentiments were echoed on Wednesday by Guy Hands, the British financier, who told the annual Super Return conference that the industry faced a battle to defend itself against critics. He warned that the top-10 buy-out firms risked becoming the “unacceptable and unaccountable face of capitalism”.

Mr Balls’s comments may have an impact on the buy-out sector that goes well beyond the UK. As the second biggest private equity market, the UK is expected to set the tone of the debate in less mature markets in Europe.

© Financial Times