Private equity firms pushed to open books
Big buyout deals may be a thing of the past, but firms still feel pressure to offer more clarity about their businesses.
LONDON (CNNMoney.com) -- Private equity firms were pressed to disclose more information about their businesses Tuesday after the publication of an industry code of conduct aimed at allaying criticism of the buyout industry.
The guidelines call for firms that buy large companies which employ more than 1,000 workers and generate more than half of their revenue in Britain to offer more clarity about their own business as well as that of their target companies.
David Walker, a former Morgan Stanley (Charts, Fortune 500) banker, drafted the rules after the British Venture Capital Association and a group of buyout firms asked him to review disclosure and transparency in the industry.
The code aims to raise the curtain on the secretive world of private equity. But the rules could place more pressure on buyout firms, which have already been dealt a blow by flagging debt markets and increased competition for deals.
While the code applies to buyout firms doing business in Britain, it is designed to act as a benchmark for the global industry. Walker's advisory group included U.S. companies Blackstone Group (Charts), Kohlberg Kravis Roberts and Carlyle Group.
Private equity firms doing business in Britain should publish an annual report that details their structure and portfolio or keep this information updated on their Web site, according to the rules.
Public companies bought for more than £300 million or firms that change private hands for more than £500 million should provide information about their ownership, as well as disclose details about the performance of their business.
The guidelines are voluntary, but buyout firms that do not comply with them will be obligated to explain why they have not.
The more stringent reporting requirements come as the private equity industry faces several challenges. Inhospitable credit markets have put large buyout deals in a holding pattern. At the same time, corporate buyers and big investors like sovereign wealth funds are creating stiffer competition for deals.
Despite the recent slowdown in dealmaking, the industry has remained a target of criticism. The scrutiny is likely to persist as private equity gains more clout in financial markets. Global private equity assets under management are forecast to surge to $1.4 trillion by 2012, up from $710 billion at the end of 2006, according to the McKinsey Global Institute.