Sir David Walker has defended his report on disclosure and transparency in private equity to the UK Treasury Select Committee. He said firms will “all commit to it” or attract “the wrath” of the committee and of parliament.
Sir David Walker
A member of the committee, MP Sion Simon said Walker’s recommendation firms submit attribution analysis anonymously provided private equity firms with “a cloak of anonymity”. This was in contrast to his original proposal, which asked for firms to provide performance data individually.
Walker said attribution analysis was important. He said if the proposals were introduced on an individual basis immediately this would produce a “perverse incentive” as firms may decide to “cook the books and fiddle the figures”.
Once a template had been established Sir Mike Rake’s committee set up to vet compliance with the proposals could choose to extend attribution analysis on an individual basis within a year, he said. But until the template is established “we won’t know the economic impact of private equity”.
Walker said hostility to the industry is generated by an “inadequacy of understanding of the way private equity works” and correct data would probably serve to mellow reactions to private equity.
The main sanction provided by the Walker report is exclusion from membership of the BVCA.
When questioned which major private equity firms were not in the BVCA and therefore would not fall under the guidelines, Walker pointed to his alma mater, Morgan Stanley, where he was chairman. However, Walker said: “You can rest assured Morgan Stanley is about to become a member of the BVCA.”
Walker also reiterated that sovereign wealth funds could be persuaded to enter a private equity-like category, if they decide to operate in the UK. The Qatar Investment Authority has already volunteered to comply with the Walker proposals having attempted a bid for UK supermarket Sainsbury’s via its investment vehicle Three Delta.
Walker also suggested the companies of UK businessman such as Robert Tchenguiz and Richard Branson should fall under the proposals. He said Branson’s bid for troubled UK bank Northern Rock was “private equity-like”.
The Committee chairman John McFall, who has been an outspoken critic of the Walker report, criticised it again for several aspects including its “silence on taxation”; its “vagueness on communication with employees”; its “watered down” attribution analysis, while saying “it is uncertain” on how compliance will be enforced.
Walker said if tax evasion was carried out by private equity executives this was a matter for UK tax collector HM Revenues and Customs and he felt the UK parliament should not “legislate across the board”. He also said there were “powerful provisions in statute” to ensure private equity firms communicate with employees.