Government & Private Equity

When Government Policies Effect Private Equity

In the aftermath of the financial crisis, federal and state legislators and regulators have been considering ways to monitor the private equity, venture capital and hedge fund industries. I just spent a week in Washington, D.C. and streets and buildings around the Capital were crowded with lobbyists and policy-makers working to push legislation through. While all these bills do not specifically concern private equity firms, many affect their portfolio companies and the industries they compete in.

With President Obama in the White House and the Democratic majority in Congress, private equity firms are bracing for major changes in areas outside of finance such as labor unions, health care, economic policy and energy. Changes on any of these fronts will inevitably effect some private equity firms and the companies they are invested in, according to panelists at a recent Private Equity Analyst Conference.

In economic policy, the recovery of the financial system and the stimulus packages are important in reviving consumption in portfolio companies from retail to manufacturers. The drastic revamping of the health care industry could have significant effects on the medical and bio firms that venture capital firms hold. The energy sector may benefit from a Democratic government hoping to “go green” and give some of these environmental startups a chance. With Obama and Congress taking on so many issues in the last few months, private equity firms and venture capitalists are unsure of what to expect.

“Policy does impact the bottom line of portfolio companies,” said Mark Heesen, president of the National Venture Capital Association. He added that venture investors have been moving more heavily to doing deals in life sciences and clean technology, both areas that are heavily regulated.

Private-equity firms are also intently focused on broad financial system reform, even the portions of it that don’t appear directly related to their business. Bryan Corbett, a principal with the Carlyle Group, mentioned as one example the impact that higher reserve requirements at banks are likely to have on private-equity firms.

Speakers were also concerned about the regulation that is specifically targeting the private-equity industry, especially legislation that would require all private-equity and venture capital managers to register with the Securities and Exchange Commission, and new proposed rules that might ban the use of placement agents in soliciting capital from public pension funds. Source

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Tags: private equity, private equity policy, venture capital, government policy, venture capital association, concerns, government regulation of private equity, government regulation buyouts