18 July 2007

IPE: Private equity firms caution on transparency calls

Private equity associations have cautiously welcomed new proposals to increase transparency of their industry, noting any future requirements must not undermine their competitive position. A special commission, headed by former Morgan Stanley executive David Walker, unveiled a host of proposals yesterday aimed at improving the transparency and accountability of private equity firms.

The commission’s main recommendations are firms file annual reports four months after the year’s end instead of the current nine, as well as detail the composition of their boards and provide key details on their buyout activity and funds.

The recommendations are not, however, directed at all private equity firms but those above a certain size – that is more than 1,000 employees or with an enterprise value of above £500m (��m).

Reacting to the recommendations, UK private equity association BVCA said: “We agree there needs to be more transparency, but there must also be a level playing field between private equity and other private companies. We will want to make sure that the overall competitive position of the UK as a place to do business is not undermined.”

European private equity lobby EVCA said it was not clear whether the commission’s recommendations, meant for the UK market, were relevant for the rest of Europe.

“The recommendations are also meant for larger buyout firms. This means that not all of them are relevant for venture capital or for the buyout sector where small- to medium-sized firms are concerned,” EVCA added.

Despite the less than enthusiastic response from private equity firms, Walker said he would draw up a voluntary best practice code based on his recommendations by the end 2007, and which could then be implemented on a “comply or explain” basis.

Walker also called for the creation of a group of trustees to assist in implementing the code and monitoring its effectiveness.

Other recommendations from Walker’s Commission include a requirement on private equity firms to supply information about their debt levels.

In Germany, meanwhile, the finance ministry is considering dropping a proposed sales tax on the fees private equity firms charge their clients, following complaints from the industry.

According to the German firms, the tax would increase the cost of their services by 19% and, thus, undermine their competitiveness compared with other buyout players.

The government plans to enact a sweeping private equity and venture capital law from January 1, 2008 in tandem with a major corporate tax reform.

See Walker report

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