This is the seventh annual report of the Guidelines Monitoring 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 levels by portfolio companies covered by the current Guidelines further improved this year with full compliance on the reporting requirements by the 25 companies reviewed. All companies achieved either a good or excellent level of disclosure overall with the proportion in the latter category increasing by 9% to 16%. The benchmark against which compliance is measured – the FTSE 350 – has also seen standards of disclosure improve and in this context, the results support the industry’s commitment to transparency. However, whilst overall compliance levels were good, there continued to be variability in the quality of disclosures on individual requirements and not all the companies reviewed met the publication and data provision requirements.
• The Group continues to review the Guidelines to ensure they evolve over time and remain relevant. 2014 saw the first amendments to the content requirements in the Guidelines to incorporate new narrative reporting requirements in the UK and a statement of conformity for portfolio companies. Therefore in the upcoming reporting season, a higher level of thought and preparation will be needed if portfolio companies are to achieve a good or excellent level of compliance with the Guidelines next year.
• The number of portfolio companies required to comply with the Guidelines decreased by one to 71, following a record year of transaction activity since the Guidelines were implemented in 2008. This includes five portfolio companies that exited and re-entered the population following a change in ownership.
• The number of private equity firms managing or advising funds which owned the portfolio companies within scope increased by two to 55. The Guidelines extend to firms that conduct their business in a manner that would be perceived by external stakeholders to be similar to that of other participants in the private equity industry and the new entrants were all ‘private equity-like’ firms. Following a further review this year, the Group amended the definition of private equity firms covered by the Guidelines to include these firms.
• The Group is committed to working with private equity firms, ‘private equity-like’ firms and portfolio companies to improve their disclosures and strongly encourages standards above the minimum requirements within the Guidelines, being those observed in the FTSE 350. Detailed feedback will be provided to all parties involved to help achieve this objective. This is particularly important in the forthcoming reporting season as the Guidelines were amended in 2014, following a consultation, to incorporate new narrative reporting requirements in the UK.
• Disappointingly, only 20 of the portfolio companies reviewed made the audited report and accounts available on the company’s website and a further two published a Walker Guidelines-compliant report that was not the full audited accounts. The Group continues to reinforce the message that accounts should be readily accessible on the company’s website and will be monitoring this in more depth next year, including the requirement to publish within the six month period.

Further highlights include

• Portfolio companies markedly improved the level of disclosure covering strategy, the market environment and principal risks and uncertainties. However, disclosures covering environmental matters and social and community issues were weaker.
• The Guidelines operate on a ‘comply or explain’ basis and none of the portfolio companies reviewed adopted an ‘explain’ approach within their annual report. One ‘private equity-like’ owner provided an explanation for non-compliance separately.
• The Financial Reporting Council’s Clear & Concise initiative is aimed at ensuring that annual reports provide relevant information and is regarded as a key step towards higher quality corporate reporting. This, coupled with new narrative reporting and corporate governance requirements in the UK, is leading to higher standards in the FTSE 350. Accordingly, portfolio companies need to embrace these developments to continue to meet the Group’s benchmark. Preparing annual reports underpinned by strategic priorities which clearly link different elements of reporting together will help in achieving this objective.
• The 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. Members of the BVCA met the requirements or were in the process of updating them at the time of the publication of this report.