This is the sixth 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 and make recommendations to the British Private Equity and Venture capital Association (the “BVCA”) for changes to the Guidelines if required.

The Group performs oversight for, and aims to guide, the industry in improving transparency and disclosure. During the year, Nick Land was appointed as the chairman of the Group and Glyn Parry as an independent member. Sir Michael rake stepped down as chairman and Alan Thomson as an independent member, both having served in their roles since the inception of the Group.

Key findings

• Compliance levels by portfolio companies covered by the Guidelines improved in 2013 and of the sample of 30 portfolio companies reviewed by the Group, 29 met the enhanced disclosure requirements. This is an encouraging progression compared to prior year, particularly in the context of higher standards seen in the FTSE 350 – the benchmark against which compliance is measured.
• The number of portfolio companies increased by 9 to 891 in 2013 and this was driven by an increase in companies complying with the Guidelines voluntarily. This includes three portfolio companies that exited and re-entered the population following a restructuring and change in ownership during the year.
• The number of private equity firms covered – which is determined based on ownership of portfolio companies within scope - increased by 6 to 532. 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.
• The quality of narrative disclosures for portfolio companies covered by the Guidelines for the first time this year was considerably higher than the same group in last year’s review. Those previously covered by the Guidelines continued to demonstrate a basic or good level of compliance with the requirements, although the quality of disclosures varied across requirements.
• 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. We will be writing to all parties involved to explain specifically what is required to ensure compliance with the Guidelines and where further enhancements can be made, as well as highlighting the strengths and excellent examples identified in the reports reviewed.
• 26 of the 30 portfolio companies reviewed made the audited report and accounts available on their websites. The Group continues to reinforce the message that accounts should be readily accessible on the company’s website.
• Portfolio companies maintained a good standard of disclosure for areas covering financial risks, principal risks and uncertainties and social and community issues.
• 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.

Further highlights include

• Since the financial crisis there has been a heightened emphasis on the clarity and quality of financial reporting. Whilst the portfolio companies reviewed were generally meeting the level of disclosure observed in the FTSE 350, the standard of disclosure expected by stakeholders is increasing, particularly the need for clear linkage between the different elements of the annual report which should be underpinned by strategic priorities. When compared to the FTSE 100, the level of compliance with the requirements was notably lower and we will use this as an additional benchmark to encourage good practice in future years.
• For the first time, the Group reviewed the websites and/or annual reports of all private equity firms covered by the Guidelines to assess if they met the disclosure requirements relating to the publication of information including details on their investment approach, UK portfolio companies, and leadership of the firm. Members of the BVCA met the requirements or were in the process of updating them at the time of the publication of this report.
• The Group continues to review the Guidelines to ensure they evolve over time with developments in financial reporting and the industry. This includes reviewing the enterprise value thresholds and whether a portfolio company should explicitly confirm that they have complied with the Guidelines. Following a consultation period, the Group will make changes to the Guidelines to incorporate the new Department for business, Innovation and Skills’ narrative reporting requirements and the related guidelines issued by the Financial reporting council, including the publication of a strategic report.