UK/EUROPE/US - Fund managers fear that moves to increase transparency within private equity will significantly lower returns.
Concerns have been prompted by high level attempts in the US and Europe for the returns of private equity investments to be made public.
The giant California State Teachers’ Retirement System (Calstrs) today published details of the performance of its private equity investments, according to reports.
In the past, the world’s biggest pension fund, the California Public Employees' Retirement System (Calpers) was forced to retract figures following a similar move after objections from private equity groups.
Private equity houses argue that secrecy allows them to sell off their investments at a premium, as they have complete control over all information concerning those investments.
The European Commission is looking at standardising corporate reporting across the European Union, which could see all companies having to issue reports on a quarterly basis.
US-based scheme California Public Employees Retirement System is involved in a legal row with scheme members which could force it into revealing the performance data of its private equity portfolio. Managers fear the case could set a global precedent for all private equity houses.
Private equity specialists Sovereign Capital UK warned of the dangers.
Managing director Peter Brooks said: “Investors in funds have a right to full transparency, but why should any member of a fund be allowed to look at a firm’s investment record?
“Why is it of such public consequence that somebody should be allowed free access?”
GMT Communications Partners UK managing director Terrence Tehranian agreed that while schemes are entitled to full disclosure, no one else is.
“Any move to total or near total transparency takes the private out of private equity. If private equity players were reporting quarterly and in great detail, that will mean that the market will have as much information on private companies as it does on public companies.
“That would significantly hinder our ability to extract maximum value when it comes to portfolio sales. When things are done by the courts, it is not in the industry’s best interests and can have unintended consequences.”
3i director of corporate affairs Douwe Cosijn added that forcing private equity houses and their clients into full disclosure would be counter-productive, as the information would be misleading.
Interim figures do not predict or accurately reflect the true value of investments, he said.
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