I was former chairman of Morgan Stanley International, I was the former regulator, the precursor of the FSA in the City, and a number of other roles. I was asked by the Venture Capital Association, which is the industry association for private equity in the UK, and by a group of major buyout firms to undertake an independent review into the degree of openness of private equity, which had come in for a lot of criticism. The scrutiny of private equity at the big buyout end had intensified greatly when they were pitching to buy Sainsbury’s, which in the event was a transaction that did not happen, and also to buy Alliance Boots. There was seen to be a lot of movement in their acquisition of listed companies that were being taken private and an acute sense that private equity is very secretive and the public just didn’t know enough about what was going on. That sense of uncertainty and ignorance led to a lot of suspicion. I have to say I think a lot of that was wholly justified, so there was disquiet that had to be addressed.

I started this task as an independent and two or three major things have happened since then to which I want to draw attention. One is that when I started in March private equity at the big buyout end was being fuelled, in particular, by cheap and abundant credit. That’s no longer the case and private equity has very substantially slowed down at the big buyout end. That does not mean that the issues that I was asked to address are all behind. My view is that there are powerful secular forces driving private equity, which will continue to drive it even though, for the time being, the cyclical element of cheap credit is no longer present.

One of the powerful forces driving private equity is a sense that to be in the quoted sector involves many more burdens and obligations and accountabilities and disclosures, which have the effect of making it more difficult to conduct the business in a tight, sharply aligned way, bringing together owner and management interest in the way that private equity can. That, I think, leads to what I have called a sort of regulatory arbitrage and that will continue even though the credit source, of drive, of dynamism, has gone for the time being. Private equity at the big end is set to become more significant in the UK even than it is now.

The second thing that’s emerged is, partly because of the perception of a weaker and weakening dollar, is the interest of sovereign wealth funds, in particular, in doing private equity-like business in the UK. This is probably the most open, developed economy in the world and sovereign wealth funds are seeking to diversify in the asset classes in which they’re invested, in particular out of the dollar. And so I’ve had to consider how – whether – it’s appropriate to extend what I’m proposing in relation to private equity, which does not include in a formal sense the sovereign wealth funds, to people who are doing that sort of business.

What’s being put in place in these voluntary guidelines in the UK is unique. No other country has this approach, no other country has legislation around private equity – and I’m not proposing legislation which I think would be inappropriate. I’m proposing voluntary guidelines. This is a first step. It’s appropriate that we should be doing it in the UK for a couple of reasons.

One, the penetration of private equity in the UK is greater than in any other developed country. It employs between 8 per cent and 10 per cent of private sector employment. It’s not satisfactory that we don’t have absolutely rock solid, hard and dependable figures – and one of my recommendations is that we should improve the quality of data around the whole of private equity.

The second reason why I think it’s peculiarly appropriate that we should be doing this is that London is not only the world’s second most important centre for private equity but also this light touch, voluntary guidelines approach is a British approach to this sort of issue. We’ve applied it in other areas: the best example in the City of London is the takeover code, which, by general acceptance around the world, has worked extraordinarily well.

But it’s not a surprise to me that many should be sceptical and doubtful whether this goes far enough. One strand of criticism is that voluntary guidelines cannot be sufficient to deal with something which is so important for employees, for the public interest, and that really primary legislation is the only way to tackle this. I take a different view. The thing that’s important to keep in mind is you can move from voluntary guidelines to primary legislation; it’s very hard to move the other way round.

My expectation is the guidelines will be widely conformed to. To ensure that that happens, to reinforce the self-interest of those in private equity firms and portfolio companies in conformity, I put in place a monitoring process chaired by a very strong, independent-minded individual – Sir Mike Rake.

One of the things that is very important is to promote wider understanding of the way private equity operates, and the nucleus, the core, the heart of that is how a private equity firm generates value. Not value for the partners, for the individuals, for the funds – of course that matters – no, value for the British economy. How do they improve the performance of the companies in which they invest? There are two or three ways in which this can happen. They can engage in financial engineering. Many people dislike that because they say this imposes undue leverage on these companies and therefore increases their vulnerability.

The second ingredient is that the space a portfolio company is in is rising in the whole market. For example energy: at the moment, virtually all energy is in a rising market environment. So you can’t say that private equity has done that: that’s the rising water level in the lock, that lifts all the boats.

The third category is what has been secured by way of real improvement in productivity, operating and performance, expansion of the top line of the business in terms of the revenues and the margin that it can generate by the private equity firm – let’s call it operating performance.

I’ve been asked – no, criticised – that the report doesn’t go far enough, and that doesn’t surprise me. In fact, I think I’ve gone a long way. I think we started from a low level, where private equity was not doing a good job in communication with employees. I think the atmosphere’s changed during my reporting, reviewing, consultation process, because no private equity firm wants to have camels outside the church at which they worship.

What will now happen under the terms of my guidelines is that, in particular, at a point at which a private equity firm is undertaking a large transaction, which is the point at which employees are justifiably most concerned about their future – Do they have a job? Are the terms and conditions of employment going to change? Is the pension provision secure? – that they be given reassurance, they be given information about what’s happening. And so I’m specifically requiring that at the time of a large transaction private equity firms and/or their portfolio companies should be extremely attentive to the interests of employees and say to employees: “This is what’s happening, these are our plans.”

You have to think more conceptually of disclosure, which I’m seeking to enhance, as a point on a spectrum between secrecy and privacy. Many in private equity – they’re emigrants from the quoted world and want to live in a new world where they don’t have all these obligations. Well, guys, that’s not going to continue to be the case, you’re going to have to assume some obligations, some obligations to match the hugely advanced rights of ownership you now enjoy. But I’m not going to the opposite end of the spectrum in seeking total transparency. Total transparency is what, to some extent in my view for quoted companies, is impairing their ability to deliver value in the same way as private equity can. I’d like to find for private equity some point which is not secrecy, which is not transparency, let’s call it enhanced disclosure or openness.

If you think, as I do, that private equity is, or has the potential to become still more, a major engine of creative imaginative grey-matter economic activity in the UK economy, it’s very important not to frighten it off. And yet going too far would actually swing the pendulum towards transparency, would actually put that in some degree at risk and I think it would be a great mistake to have the effect of driving this business out of the UK when I think we’re drawing huge benefits from having it here.