With the daily churn of headlines emanating from global capitals, private equity investors can be forgiven for having a tweet-induced policy whiplash. Putting aside personality politics and wider political narratives, there are a host of coming policy changes – both big and small – that have direct implications for the private capital industry.
Here we take a look at some of the immediate changes in store for investors. We have kept the analysis mostly focused on US regulations, but there are a few with global applicability (GDPR) which are pertinent for GPs and LPs everywhere.
The following have been announced, are effective, or are currently under active consideration by the relevant regulatory authority:
Effective Date: January 1, 2018
In short: Discussed ad nauseum, this is the largest piece of US tax legislation passed in more than 30 years. Changes to nearly all facets of the 1986 Internal Revenue Code, impacting individuals, families, business, and institutions.
Private Equity Implications:
Effective Date: May 25, 2018
In short: “GDPR is a new set of rules designed to give EU citizens more control over their personal data. It aims to simplify the regulatory environment for business so both citizens and businesses in the European Union can fully benefit from the digital economy.” Fines for improper handling of information: up to 4% of global revenues.
Private equity implications:
Effective Date: May 24, 2018
In short: The ‘Bank Systemically Important Financial Institution (SIFI)’ threshold, which determines the size at which a bank is subject to enhanced regulation by the Federal Reserve, is increased to $250 billion from the $50 billion threshold established by Dodd-Frank. Includes a caveat that the Federal Reserve retains the discretion to apply enhanced regulatory standards to any specific bank greater than $100 billion. Exempts firms with less than $10 billion in assets from the Volcker Rule.
Effective Date: May 14, 2018
In short: The U.S. Supreme Court ruled that New Jersey can legalize sports betting – setting precedent for other states to follow suit. Officially, this was the repeal of the Professional and Amateur Sports Protection Act, which banned gambling on sports events.
Proposed: May 25, 2018
In short: The Department of Homeland Security (DHS) is proposing to end a program that allows certain foreign entrepreneurs to be considered for temporary visas to come to the United States to build and develop a start-up businesses here, known as the International Entrepreneur Rule (IE Final Rule).
In short: The regulation introduces a common framework and consistent approach to index and benchmark regulation across the EU. It aims to ensure benchmarks are robust and reliable, and to minimise conflicts of interest in benchmark-setting processes. An index will be regulated as a “benchmark” where it determines amounts payable under or sets the value of financial instruments or financial contracts.
Beyond the specific policy changes announced above, the following thematic issues are likely to impact investor thinking in the coming years:
In short: It is worth remember that in the 2016 US presidential election race, both Trump and Clinton vowed to scrap or water down the TPP, NAFTA, and other free trade agreements. Senator Bernie Sanders even threatened to leave the WTO. With Trump in office, he has been most consistent on free trade.
In short: The Federal Reserve has raised interest rates 6 times since the financial crisis. The general expectation is that the Fed will raise rates 3 – 4 times in 2018.
In short: With the value and use of cryptocurrencies skyrocketing over the past year, authorities have begun to regulate the industry.
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