Accounting rules to expose UK funds

Certain UK-based funds may need to meet the more revealing accounting and disclosure standards applicable to UK companies. 

The UK government has recently produced draft amendments to its rules governing limited partnerships – the private equity legal structure of choice – which are due to go live this April. 

The rules were previously written in a way that most private equity funds fell out of their scope, but will now catch any UK fund whose sole general partner is a limited company. If caught, funds would need to disclose potentially sensitive information, which may for instance include carried interest allocations and portfolio company valuations, according to a client memo from law firm Dechert. 

“In order to avoid this, affected funds could replace their corporate general partner with a limited liability partnership (a LLP), or insert a LLP as a second general partner,” the memo said. 

One offshore-based lawyer said the updated accounting rules could drive some onshore UK funds to the Channel Islands, a popular fund domicile for EU managers, where such disclosures would not need to be made. 

The choice to domicle onshore or offshore is however a complicated decision. Be sure to check out the March edition of PE Manager where we explore this issue in detail.