This is the Tenth annual report of the Private Equity Reporting Group (the “PERG”) 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 PERG 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

• Over the past ten years, the PERG has encouraged higher standards of disclosure in portfolio company reporting and updated the Guidelines periodically to ensure they remain relevant. This has caused a larger number of companies within the scope of the Guidelines to aspire to the standard of reporting seen amongst the better performers in the FTSE 350, which is the benchmark for compliance.
• Each year, a sample of approximately one third of all portfolio companies that fall within the scope of the Guidelines is reviewed for compliance with the disclosure requirements. In 2017, compliance by portfolio companies with the disclosure requirements fell to 79% (2016: 86%). Private equity firms and their portfolio companies have been slow to embed the 2014 revisions to the Guidelines and have not kept up with the improving quality of reporting by the FTSE 350.
• Based on our detailed review of the sample and our knowledge of the full population, six portfolio companies have not complied with the Guidelines in full this year: Advanced, Village Hotels, Camelot, MRH, London City Airport, and NGA Human Resources. This is highly disappointing and needs improvement. The PERG is continuing to work with their owners towards compliance in future years.
• The PERG acknowledges that within the sample reviewed, all BVCA members and their portfolio companies are compliant with the Guidelines or have provided appropriate explanations. Non-compliance is unfortunately driven by non-BVCA members, although the PERG recognises the strong efforts by some non-BVCA members and their portfolio companies to comply with the Guidelines.
• Overall, only 63% of the sample reviewed in the current year achieved an overall good or excellent/“best in class” rating (2016: 57%). Excluding non-compliant companies, the level of good quality disclosures compared to basic disclosures is actually higher this year at 80% of the sample compared to 67% in 2016. This reflects the efforts by those companies that do strive to comply with the Guidelines and improve on their disclosures.
• Pleasingly, HC-One and Viridian, which had remained non-compliant at the end of the review process last year, were re-reviewed in the current year and are both now compliant with the Guidelines with some of the highest quality disclosures reviewed this year.
• This is the third 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 requires the disclosure of each portfolio company’s business model, detail on gender diversity and its response to human rights issues, and additionally a specific statement of compliance with the Guidelines in the annual report.
• Only 53% of companies sampled have included a specific statement of compliance with the Guidelines in the annual report and financial statements. This is disappointing and the PERG expects portfolio companies and their private equity owners to address this going forward.
• The Guidelines apply to the largest private equity-backed companies with a significant presence in the UK. The number of portfolio companies required to comply with the Guidelines has decreased from 60 companies in 2016 to 52 this year, a result of 13 exits and five new transactions.

Further highlights include

• Private equity firms managing or advising funds that own portfolio companies in scope of the Guidelines are responsible for ensuring compliance with the Guidelines by those portfolio companies. This includes private equity-like firms i.e. 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, including infrastructure funds, sovereign wealth funds, pension funds and credit/debt funds.
• The number of private equity firms managing or advising funds that owned the portfolio companies within scope decreased by 15 from 74 to 59 this year. This includes 37 firms that conduct their operations in a ‘private equity-like’ manner, such as infrastructure, credit and pension funds, which outnumber private equity firms by 15.
• In the current year and based on the sample reviewed, good quality disclosures have been produced by portfolio companies in relation to their financial and non-financial KPIs; strategy; financial risks; and analysis of development and performance during the year and position at year-end.
• Areas where the standards of disclosure require improvement by portfolio companies include human rights; gender diversity; employee matters; identity of the private equity firm; and trends and factors affecting future developments, performance or position.
• 78% of portfolio companies have published an annual report in a timely manner on their website. This rises to 93%, where companies uploaded their annual report after the initial deadline. 72% have published a mid-year update on their websites in a timely manner. This is the first year the PERG has publicly named companies that have not met these requirements and will continue to do so in future reports. The PERG 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 have met these requirements.