Private equity code of conduct under fire

The launch yesterday of new rules for private equity funds failed to placate the industry's critics, with MPs and trades unions attacking a proposed code of conduct for lacking teeth.

The new rules, the product of a review of the private equity sector by Sir David Walker, the former Bank of England official, place much greater onus on private equity funds to provide more details of the financial performance of companies they take over.

Sir David's review was prompted by increasing criticism of the private equity industry, which critics have accused of a secretive, asset-stripping approach to management that has resulted in thousands of job cuts in recent years.

But John McFall, the chairman of the cross-party Treasury Select Committee, which is due to interview Sir David next month, said he was disappointed by the new rules, which he claimed had been watered down following complaints from individual private equity firms.

The new rules will require private equity companies to publish accounts for the larger companies they own no later than six months after financial year-ends.

However, Sir David originally suggested a four-month deadline and has also dropped proposals to force individual private equity firms to detail what profits they make from financial engineering. Mr McFall said: "I want people in the industry to be alive to the public interest and ensure they're going more than half way to meet it."

The rules were also criticised by Brendan Barber, general secretary of the TUC, who said improved disclosure was a smokescreen designed to head off criticisms of private equity firms' approach to cost-cutting, and of their tax breaks.

"The truth is that they have chosen this ground on which to make limited concessions," Mr Barber said.

But Sir David denied producing a "wimpish" set of recommendations and rejected suggestions of "a whitewash". He also called for the rules to be extended to cover institutions such as sovereign wealth funds, which are bidding for the same sort of assets as the private equity sector.

The rules won support from business groups and investors. Richard Lambert, director general of the CBI, said: "The recommendations will place considerable extra reporting burdens on the industry which are not shared by other large private business or by their peers in other countries – it is to the credit of the industry that it voluntarily requested a review."

David Paterson, head of corporate governance at the National Association of Pension Funds, added: "We believe that these proposals will support the success of the industry by encouraging an appropriate level of transparency, reporting to investors and improved performance reporting."