Daniel Godfrey, director general of the AIC, comments: ‘The listed private equity investment company sector represents a relatively small but significant part of the total UK private equity market.

‘The benefits that arise from the sector’s stock exchange listing, low barriers to entry, easy tradability of shares, regular reporting requirements and the protection of an independent board create an excellent model both to widen ownership of private equity and create a model of good practice in the private equity arena.’

Godfrey’s comments came as part of a response to the FSA’s consultation paper Private equity: a discussion of risk and regulatory engagement.

The AIC says that the risks identified by the FSA in relation to private equity investment are reduced where listed investment companies are involved. This stems from the high governance and transparency requirements which apply to listed private equity investment companies.

The FSA has suggested that potential conflicts of interest between shareholders and managers of private equity funds are a cause for concern.

However, according to the AIC, listed private equity investment companies have an advantage in that they have independent boards with legal obligations to ensure that the interests of shareholders are properly considered when potential conflicts of interest between investors and managers arise.

The FSA has also expressed concerns about the wider transparency of the private equity sector. These risks are, argues the AIC, reduced for listed private equity investment companies because they are required to meet high standards in relation to regular public reporting.

Constrained access to private equity has also been raised by the FSA. While traditional private equity investment does involve significant barriers to entry, the AIC claims that listed investment companies can offer access to retail investors at a low cost and with low minimum investment requirements as well as liquidity because their shares are freely traded on the stock market.