This is the Ninth annual report of the Private Equity Reporting Group (the “Group”) and provides a summary of the private equity industry’s conformity with the Guidelines for Disclosure and Transparency in Private Equity (the “Guidelines”) following their introduction in November 2007. The Group was established in March 2008 to monitor conformity with the Guidelines recommended by Sir David Walker in 2007 and make periodic recommendations to the British Private Equity and Venture Capital Association (the “BVCA”) for changes to the Guidelines if required.

Key findings

• Compliance by portfolio companies covered by the Guidelines fell slightly this year to 88% (2015: 95%). Three companies have not complied with the Guidelines in full this year: HC-One (backed by Safanad, Formation Capital and management); Village Urban Resorts (KSL Capital); and Viridian (Arcapita). Both HC-One and Viridian are committed to complying next year.
• The quality of disclosures by portfolio companies covered by the Guidelines, however, fell substantially this year with only 57% of the sample reviewed achieving an overall good or excellent/“best in class” rating, whereas 95% achieved this level in 2015. This decrease in standards is primarily due to a higher proportion (nearly half) of the sample being new to the process and continued improvements in corporate reporting by the FTSE 350, the benchmark for judging compliance.
• The number of portfolio companies required to comply with the Guidelines has decreased from 62 companies in 2015 to 60 this year, which was a result of 13 exits and 11 new deals.
• The number of private equity firms managing or advising funds which owned the portfolio companies within scope increased by 1 to 66 this year. This includes firms that conduct their operations in a ‘private equity-like’ manner, which remained at 33.
• This is the second year where all portfolio companies are required to comply with new reporting obligations under the Guidelines (due to changes in the Companies Act 2006), which require the disclosure of the portfolio company’s business model, detail on gender diversity and its response to human rights issues.
• Portfolio companies have not significantly improved the quality of disclosure in any one Guidelines’ criterion. Disappointingly, the quality of disclosure was weaker this year against a backdrop of higher standards seen in the FTSE 350 and a lack of awareness of new requirements in the Guidelines. Criteria where some weakness was noted included review of financial position; balanced and comprehensive analysis of development and performance during the year and position at the year-end; financial and non-financial key performance indicators; trends and factors affecting the future development, performance or position of the company; environmental factors; and human rights issues.
• Nearly half of companies reviewed did not initially include a human rights and/or gender diversity disclosures in their annual report, but this was addressed by placing additional disclosures on the company’s website. Whilst in practice this is seen to be transparent, it reflects a theme that further effort is required to increase the awareness of the content of the Guidelines and the feedback in this report at a portfolio company level.
• The Group strongly encourages portfolio companies to aspire to standards of disclosure above the minimum requirements, being those observed in the FTSE 350. This is pertinent given the fall in quality of disclosures this year and broader UK initiatives such as those set out in the Government’s recently published green paper on corporate governance reform.
• In line with previous years only 40% of companies have included a specific statement of compliance with the Guidelines in the annual report and financial statements.
• Disappointingly, 20% of all portfolio companies had not published their audited report and accounts on their website at the time of this report. A substantially greater proportion of companies have not been publishing their accounts within six months of year-end. Additionally, more than half of Walker companies have not published a mid-year update for 2015-16. The Group will start to name companies publicly that do not meet these requirements in next year’s report. vThe Group reviewed the websites and/or annual reports of all private equity firms covered by the Guidelines to assess compliance with applicable disclosure obligations relating to their own activities. All members of the BVCA met the requirements.