Reporting
Introduction
The objective of these Guidelines is to set out best practice on the content, timing and frequency of reports to investors in private equity funds structured as limited partnership fixed-life funds (currently the most common fund structure in the private equity industry). It is hoped that these Guidelines will also serve as a useful reference for private equity funds structured differently.
The aim in producing these Guidelines is to promote best practice and to improve the quality and consistency of reporting to investors, thereby enabling investors to make better economic decisions.
It is recognised that some private equity firms will wish to disclose additional information to that specified below, and there is no intention that these Guidelines should restrict this.
The reporting provisions are set out below, under the headings, Timing, Fund Performance, Portfolio Reporting, Stock Distribution and Capital Account. There then follows a section addressing the Internal Rate of Return (“IRR”) as a measure of performance for private equity funds and specifying some principles to be applied in its calculation. Appendix 1 contains a template illustrating how the reporting provisions might be incorporated into a report to investors.
Timing
Timing is a critical element in the reporting process.
Reporting is produced semi-annually, within 60 days (half year) and 120 days (full year). Investments should be revalued semi-annually.
Fund Performance
1. A Fund Summary that includes the following:–
1.1. first closing date and vintage year (i.e. year of first cash flow) and total commitments;
1.2. fund’s domicile, legal form and structure, and investment focus both by stage and geography.
2. An Executive Summary that includes the following:–
2.1. total commitments, total drawn and invested to date, and total distributed;
2.2. current investments (significant events);
2.3. new investments;
2.4. realisations;
2.5. significant changes to the management company or general partner changes (especially to senior investment personnel) or the environment in which the fund operates;
2.6. net IRR to investors. The mentioning of this at Executive Summary level is optional during the first 2 years of the fund; and
2.7. notification of the Annual Meeting date and place.
3. IRR, calculated on at least a monthly cash flow basis, on fund performance (net to investors), multiple of investment cost, return on Capital and Income, all on the assumption that all investments are realised on the date of the reporting.
4. Clear statement of the overall position, by fund, including prior period comparative figures of:–
4.1. total commitments;
4.2. total drawn down, and when;
4.3. total committed or reserved for follow-on investments;
4.4. total invested, and in what;
4.5. total remaining available for draw down;
4.6. total distributions, to the investor, and to the manager or general partner; and
4.7. total value of remaining assets.
5. Clear statement of management fees, profit share, and carried interest paid to the manager or general partner.
6. Clear statement of related party transactions, benefits and fees, broken down into principal categories (such as underwriting fees, directors or monitoring fees, deal fees, broken deal fees, etc). The treatment of such fees and transactions is obviously specific to each individual fund, but clarity in disclosing the treatment of such issues is key.
7. Note of any leverage to the fund, including debt and guarantees, charges, or contingent liabilities.
8. Value progression chart, showing the change in value of the fund over the life of the fund, broken down into investments at cost, realised gains and losses, unrealised gains and losses, and compared against total commitments. An example is included in the template (Appendix 1).
9. IRR – in addition to the fund IRR, a gross IRR on realised and unrealised investments. Furthermore, a consistent and appropriate comparison against an industry benchmark is helpful but optional.
Portfolio Reporting
The following information should be disclosed for significant investments. A significant investment is an investment that either has a carrying amount exceeding five percent of the carrying amount of the portfolio as a whole or is one of the largest 10 investments ranked by carrying amount or is significant for some other reason.
10. General information on the portfolio company and the investment:–
10.1. legal and trading names (including any changes) of portfolio company;
10.2. location of head office or management;
10.3. total amount invested by the fund;
10.4. brief description of the business;
10.5. stage of investment;
10.6. statement of the fund’s role in the investment (lead, co-lead etc);
10.7. statement of any co-investment in transactions, in accordance with the arrangements with the fund’s investors;
10.8. percentage ownership and board representation (if any) by the fund; and
10.9. valuation at time of investment.
11. Specific information concerning the investment:–
11.1. fund’s investment and divestment or distribution amounts (broken down by class, by cost, and by nature – i.e. capital or income; cash or stock/in specie distribution – and by date of investment) in the currency of the fund;
11.2. other exposures, such as guarantees and loans;
11.3. valuation of each investment, in accordance with BVCA Valuation Guidelines.
12. Significant events and issues:–
12.1. brief analysis of significant events during the reporting period and anticipated events;
12.2. any restrictions on the liquidity of the investment (for example, a lock-up period on listed shares);
12.3. disclosure of any significant extraordinary items.
Capital Account
It is strongly recommended that the funds include a capital account in their investor report. A capital account details the change in an investor’s equity and capital contributions over a given period. An example of a capital account is included in the template (Appendix 1).
