PRINT THIS PAGE Freedom of information09/01/2006. Source: SJ Berwin. Simon Witney
Since the beginning of last year, the UK has had laws in place designed to provide open access to information held by a wide range of British public authorities, says SJ Berwin, including many of the public pension funds that invest into private equity. Similar to long standing US rules, the British law says that - subject to certain exceptions - anyone can ask to see any document held by the public authority, at any time and without providing any reason for wanting to see it. That would, on the face of it, include any information provided to a public pension fund by a private equity fund into which it has invested.
When these rules first came into effect in January, fund managers were very worried about their impact. Some felt that even top line performance information about the fund - such as amounts drawn down for investment, amounts returned to investors and cash on cash rates of return - was a matter for the GP and its investors to know, but was not anyone else's business. Others were only concerned about the wider disclosure of commercially sensitive information about the portfolio itself, such as the quarterly reports to investors on individual company performance.
The British Venture Capital Association (BVCA) made the point strongly that the private equity industry was one of the most transparent that there is. The relationship between a fund manager and its investors is very open indeed, with months of due diligence before an investment, and very detailed reporting (usually to industry-wide standards) through the life of the fund.
That open relationship is only possible because there are detailed confidentiality provisions in place, so that the manager can make full disclosure to its investors without worrying that the information will go any further - for instance, into the hands of a competitor to a portfolio company.
The UK's new rules threatened to blow a hole through that open relationship. That could cause managers to restrict the flow of information to public investors, or even deny them access to funds altogether.
Nine months on, and it is possible to begin to assess the impact. It is certainly true here, as in America, that some funds have decided not to seek public authority money. There are still only relatively few of those funds, although inevitably they are the most popular ones.
They also tend to be the smaller ones. In fact, many of the larger, international funds have already accepted that top line information will be publicly disclosable - CALPERs (the largest private equity investor in the US) publishes that information on its website for the funds into which it has invested.
But there are still fears that the UK rules could be more far-reaching, and require more information to be disclosed. That should not be the case - the law has carve-outs for confidential and commercially sensitive information - but the new law is untested, and in some respects unclear.
As a result, there is still a degree of caution around, and funds are seeking to restrict the information that they will provide to affected investors, and to require them to use their best efforts to prevent disclosure if it is ever sought. Ironically, laws designed to make information more widely available are actually making the private equity industry less open with some of its investors, and for very good reason.
As Germany develops similar laws (although following the recent election, the status of that process remains unclear), the evolving landscape will be followed with interest right across Europe.
Simon Witney
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com
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