UK accounting rule change sparks fund restructuring

UK-based private equity firms are restructuring their general partnerships to prevent their financial statements from being released to the public.

Fund managers in the UK are taking defensive measures in response to an accounting rule change that could open their financial records to the public.

The UK government recently reformed its accounting regulations in a way that meant certain fund advisors could be defined a “qualifying partnership”, meaning their audited financial accounts could be open to public inspection.

Previously, the UK defined a qualifying partnership when every partner (both limited and general) is either: a limited liability company; an unlimited liability company each of whose members is a limited liability company and a Scottish partnership. Usually, at least one limited partners in a private equity limited partnership would not fall into one of the above categories. But, the UK has changed the definition so that a qualifying partnership is one where each general partner falls into one of the above categories.

To avoid this designation, GPs are adding a limited liability partnership as a second or replacement general partner to their fund structure, according to accounting sources.

Such restructurings need to be completed by the end of the partnership’s first full financial year that begins on or after October 1, 2013 to take effect under the reforms.

But many GPs have begun this restructuring work already as it can often be a timely process. “At best it would take two to three months,” one private equity accountant told PE Manager. This is because many GPs will need to first gain investor approval before the restructuring can being.