Will Walker be a runner?

Sir David Walker has finally published his long-awaited recommendations for improving transparency in private equity – but they're not likely to appease all the industry's critics.

Last Updated: 31 Aug 2010

Walker is proposing a voluntary code that UK buyout firms will sign up to on a comply-or-explain basis. This will oblige them to publish more details about their management team, the way they operate, and the profile of the limited partners that invest in their funds – either in the form of an annual report or by website updates. They will also commit to follow established guidelines in the way they evaluate investments, and to spend more time communicating with employees when they buy a company. There will also be a greater reporting burden for portfolio companies above a certain size.

Walker has spent the last few months consulting with buyout firms following the publication of his draft proposals in July. But he was quick to deny this morning that his recommendations had been watered down as a result. “This was not a negotiation,” he insisted. “I listened, I had big ears; but there’s nothing I wanted to do that private equity firms have argued me out of.”

There have been two major changes since July. There’s a greater burden of responsibility on the BVCA, the industry trade body, which he wants to play a more proactive role in measuring private equity’s performance and improving awareness of its achievements. Back in July he clearly had no confidence whatsoever in the old regime’s ability to do this, but with the recent arrival of a new chief executive, “the BVCA has clearly got the message that it needs to up its game,” he said.

He’s also responded to the major criticism of his code – that it will have no teeth – by setting up an independent monitoring body, which will be dominated by independents and chaired by ex-KPMG head Sir Mike Rake. Although he seems to think that ‘enlightened self-interest’ and ‘peer pressure’ will be the most effective weapons.

Of course, not everyone’s convinced by Walker’s voluntary code. Some argue that it won’t work, on the ‘turkeys don’t vote for Christmas’ principle: the fear is that firms will sign up to the bits that suit them, and then find clever ways to avoid the rest (perhaps by moving certain parts of their operation overseas). And nobody seems to know how sovereign wealth funds, buyout firms in other jurisdictions and other big private groups are going to fit into all this – Walker reckons the BVCA will be able to talk them into complying, but that sounds like wishful thinking.

And the unions will be hopping because Walker is still insisting that private equity firms shouldn’t have to reveal the massive salaries earned by their partners. So that won’t do anything to diffuse the whole ‘fat cat’ row.

Walker faces the age-old dilemma: if he tries too hard to find a middle ground, he'll end up pleasing nobody. He said today that he was ‘wearing his bullet-proof vest’ as he prepared for the ensuing media onslaught - chances are he’ll need it.

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