A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

FISCAL AND OPERATIONAL ISSUES

• A self-appointed group of private equity practitioners, fund managers, fund of funds man- agers and others, the PEIGG (Private Equity Industry Guidelines Group), has also published valuation guidelines 47 , which are the most commonly referred to guidelines in the United States. In these guidelines, the PEIGG underlines the most important reasons for reporting assets at fair value: > Investors’ desire to measure interim performance; > Investors’ need for fair value data to report investments in their own financial statements; > A manager’s need to report and measure valuations in accordance with fund agreements; > The need to determine the allocation of distributions of fund realisations. C onsolidations & IFRS impacts In the past five years, an increasing number of private equity funds chose to use IFRS in- stead of local GAAPs. Main reasons are the willingness to exit the private equity vehicle through an IPO and the need for investor reporting for consolidation purposes. IFRS has become more and more popular with the various bankruptcies of companies since Enron Corporation and more recently, with the subprime crisis. As the private equity industry has grown and matured, its participants have become in- creasingly interested in improving the consistency and transparency of information ex- changed by participants. There is a strong desire from both GPs and LPs to improve the information sharing process. Managers have a duty to provide reports that allow investors to monitor and evaluate their investments, while investors have a fiduciary responsibility to understand their investments. Additionally, as private equity becomes a more significant portion of portfolios, boards and investment officers request more information on their investments. The extent of informa- tion required by investors varies due to a wide range of factors, such as type of organisa- tion, reporting structure, staff size and level of sophistication 48 . The quality of reports may be used by investors to compare private equity houses to com- petitors. The private equity industry has traditionally focused its efforts on continually improving its communication with investors. Due to its increasing importance in the global economy, the industry also feels the need for more communication of a wider range of interested parties (e.g. employees and existing shareholders of portfolio companies, trade unions, etc.). Working groups and associations such as the EVCA, the BVCA, the PEIGG, the ILPA (Insti- tutional Limited Partners Association) among others, have undertaken an effort to publish a set of reporting guidelines for the content, format and delivery of fund information that seeks to increase reporting consistency and transparency. Such reporting guidelines have been widely adopted in Europe and beyond. Software providers have also completed their range of modules to provide managers with tools allowing them to produce more easily and efficiently such reports and to allow inves- tors to get a direct web access to their reports. Reporting

3.2.6

3.2

48 Source: PEIGG, “Reporting and performance measurement guidelines”, March 2005 49 Source: EVCA, “EVCA reporting guidelines”, June 2006 (reprint January 2009)

A thorough understanding of PE | page 65