Wednesday, 21 November 2007

Walker Review - engagement opportunities?

Yesterday Sir David Walker published his report on transparency in the private equity industry. You can download it here. Very broadly it makes recommendations for voluntary reporting in respect of private equity houses, their portfolio companies and the industry trade body the BVCA.

For example, portfolio companies above a certain size (1,000 employees with at least 50% of revenues in the UK) would have to disclose info such as the identity of the private equity fund or funds that own the company, the senior managers or advisers who have oversight of the fund or funds, and detail on the composition of its board. They also have to provide an annual report including a business review - like that required of public companies - to include information on the company’s employees, environmental matters and social and community issues.

Not surprisingly, the unions have given the report a bit of a kicking. See the TUC reaction here and the GMB statement here. At the risk of being a bit off-message I don't think Walker was ever going to address the issues around PE that really bother unions, so I'm not totally convinced of the merits of trashing the report.

Personally I wonder if the report actually throws open some opportunities. First, because the framework is voluntary, surely this will provide campaign targets if some firms don't sign up. If unions put pressure on firms that don't play ball those firms will no doubt also come under pressure from the industry ityself. (Incidentally I've always thought the same approach should be taken to fund managers that don't disclose voting records now that the ISC has grudgingly endorsed disclosure). Unions could also put pressure on via the limited partners - ie the pension funds investing with those PE firms.

Secondly, as I understand it the review avoided obliging PE firms to provide 'attribution analysis' which would have shown how fund performance is generated. That would split out operating improvements from the impact of gearing. In other words it would show how the funds really make their money. In the cases on some recent big buyouts surely this would show how important debt has been? So why not campaign for the industry to disclose the information so that everyone can see whether performance is primarily about efficieny or gearing?

Finally, the fact that the BVCA has been urged to produce better data is surely another way in. Having read a fair bit about the impact of PE on employment I would be surprised to see any serious work back up the assertions made by the industry. Could be useful ammo.


Charlie Marks said...

Walker seemed pleased to have pissed of unions and Labour MPs - "left-wingers", as he put it...

Tom P said...

I can't help thinking the reaction is a bit a) misplaced and b) unfocused.

Walker was never going to deal with anything other than transparency issues, so why attack it for not doing so?

I think the unions should hammer home the point about attribution analysis. This is a weak spot for the industry as it really does get to the heart of how it makes money. That info wopuld be really useful to a range of different groups, so why not be the vanguard ;-)