The Australian Securities and Investments Commission (ASIC) has highlighted a number of focus areas for directors in 30 June 2011 financial reports after releasing the results of its reviews of financial reports for the year ended 31 December 2010.

ASIC Commissioner Michael Dwyer, has warned that company directors and accountants should ensure that material disclosures necessary for investors to understand the financial position and performance of a company should be included in financial reports.

ASIC’s reviews focused on eleven areas including:

  • segment reporting
  • consolidation of controlled entities
  • use of the going concern assumption
  • asset impairment
  • fair value of financial assets
  • financial instrument disclosures
  • disclosures of estimates and accounting policy judgements
  • accounting for business combinations
  • related party disclosures
  • operating and financial review, and
  • alternative profits

A statistical analysis of initial public offerings (IPOs) shows that private equity backed IPOs have historically recorded higher average returns than non-private equity backed listings.

The study by the Australian Private Equity and Venture Capital Association (AVCAL) found that newly listed shares by private equity (PE) firms outperformed non-PE backed listings across all time horizons analysed from one day to three years after IPO listing, with average returns ranging from 4 per cent to 78 per cent across the different time scales compared to minus 2 per cent to 4 per cent for non-PE backed IPOs.

The results also showed that PE-backed IPOs’ outperformance tended to increase over time. The average share price of PE-backed stocks grew by 1.78 times over a three year period after listing compared to non-PE stocks which averaged 0.98 times their listing price. PE backed IPO average share prices were also higher after one day, one week, six months, one year and two years post listing.

AVCAL CEO Dr Katherine Woodthorpe said that the research disproves the notion that PE backed IPOs consistently underperform compared to non-PE backed stocks.

“There has been a misguided view in some quarters that private equity investment doesn’t have a long term benefit to investors beyond the PE ownership period,” she said.

“This study clearly demonstrates that PE backed IPOs brought superior returns on average than non-PE backed IPOs even up to three years after listing. In fact, PE backed IPOs outperformed more, on average, over longer time horizons.”

Dr Woodthorpe said PE backed companies have cited factors such as rigorous strategic oversight and governance, speed of decision making and the freedom for senior management to concentrate on operational performance as some of the key benefits of PE ownership.

“Private equity develops governance systems and processes within companies to prepare them for the rigours they face entering a public market environment. These factors become culturally embedded in the organisations and are to the benefit of subsequent owners.”

The study, ‘An analysis of the performance of private equity-backed IPOs in Australia’, was peer-reviewed to validate the research methodology and findings.

The study analysed all IPOs valued at $100m and above from 23 October 2003 to 8 Nov 2010. This period included 14 PE backed IPOs and 88 non-PE backed IPOs.

To validate the robustness of the results, alternative time periods were analysed, as well as the possible distortionary effects of a small number of extreme performers on the average returns. The study also used various weighting, index and sector-matching measures to obtain more balanced comparisons.

For example, the analysis included the construction of weighted indices to compare the concurrent performances of PE and non-PE-backed IPOs over time.

Over the seven-year period, the PE-backed index more than tripled from the base figure of 1,000 to 3,386 while the non-PE IPO index rose to 2,099. Both indices outperformed the S&P/ASX 200 Accumulation Index market benchmark which rose to 1,985 over the same period.

This analysis was also repeated using only the industry sectors which had both PE and non-PE IPOs, resulting in an even greater outperformance by PE backed IPOs. Over the entire seven-year period of the study, PE IPOs generated a compound annual growth rate of 19.03 per cent compared to just 0.52 per cent for non-PE IPOs.

The IPO report can be found at the AVCAL website under Research.

Joint Committee of Public Accounts and Audit, chaired by Independent MP, Rob Oakeshott, has called for the Australian Taxation Office to report back in six months on action it has taken to improve complaint handing and to address the causes of complaints.

Data compiled by finance consultants MISC Global shows that the rate of mortgage ‘churning’ through mortgage brokers has declined sharply, with the number of brokers selling a mortgage in the March quarter falling to 119 from 161 in the same quarter last year.

Research company, Chant West, has found that Australian super funds have achieved positive returns for the second consecutive year.

The merger of public sector superannuation fund, First State Super with Health Super on 30 June 2011 has created a super fund with over $30 billion and more than 770,000 members.

A public inquiry will be held into the NSW Parliamentary Budget Office to examine its future role and functions.

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