A European private equity trade body has published new disclosure standards in an effort to tackle investors’ concerns over fees and reporting.
“Institutional investors demand high standards on issues such as responsible investment and fee transparency.”Invest Europe’s 2015 Professional Standards Handbook includes “substantially updated” guidelines for fee disclosure, the organization said in a release.
The publication arrives as pressure mounts on private equity managers, with several high-profile investors scrutinizing the fees they have paid out.
In addition, the US Securities and Exchange Commission last month named fees and expenses for private equity and hedge funds sectors as a key priority for 2016. The regulator has already fined KKR and Blackstone this year for failings in charge disclosures.
While Invest Europe requires members to comply with a six-point code of conduct, its guidance on fees is voluntary. The handbook calls firms’ full disclosure of fee terms “recommended.”
Firms implementing these best practices would provide a “detailed breakdown” of all fees paid directly or indirectly by portfolio companies to the general partner (GP) and related entities or individuals; disclose management fee terms; differentiate costs borne by the investor and those paid by the GP; detail the treatment of fees paid by portfolio companies; and state carried interest arrangements.
Marta Jankovic, vice-chair of Invest Europe’s professional standards committee and governance specialist at Dutch pension manager APG, said the new handbook “sets a clear benchmark for all fund managers.”
“Institutional investors demand high standards on issues such as responsible investment and fee transparency,” Jankovic said. As well as fee transparency, the handbook “integrates environmental, social, and corporate governance topics throughout,” she added.
“The rapid growth of the industry over the past decade implies that an increasing number of people are today employed by companies that are wholly owned or controlled by the industry,” according to the industry group’s publication. “An even wider group is increasingly impacted as stakeholders in portfolio companies. This creates the need for a greater level of transparency and disclosure of information by individual GPs and the industry to a wider stakeholder group.”
Invest Europe’s code of conduct requires its venture capital and private equity members to act with integrity, fulfill their promises, disclose conflicts of interest, act in fairness, maintain confidentiality, and do no harm to the industry.
The handbook is available online from Invest Europe.
Related: The Argument for Private Equity & From All Sides, Pressure Mounts Over Private Equity Fee Practices