Private-equity investors ready for tighter regulation

Private-equity investors feel the asset class faces more public pressure and will have to accept new rules on how it operates, a report released Monday by investment firm Collar Capital suggests. That includes going beyond the rules required by government regulators.

The Kolar report, which invests in secondhand private-equity fund stakes, shows that 59% of private-equity limited partners think that social pressure will eventually require the industry to self-regulate, which is comparable to government regulations. I am strict. The rest feel that this will be enough to comply with formal government regulatory requirements. The report was based on survey responses from 102 investors in private equity globally.

The survey shows that in the US — where regulators have recently planned changes to private-equity rules — investors expect increased government regulatory requirements. Fifty-one percent of limited partners in North America expect more government regulation of private equity in their domestic market.

However, it is not clear whether investors view the prospect of the new rules as good news. Collar did not survey investors’ views on regulation in this survey, but in a similar survey released in June, 70% of investors thought regulatory changes posed a risk to investment returns, up from 43% about six months ago. Was. Another 63% in that survey thought the change in tax policy posed a significant risk to returns.

The results suggest a struggle for investors regarding the recent push to rein in private-equity managers. The industry has been the target of criticism in recent years around issues such as how firm practices affect workers at the companies they buy, and how they affect customers and patients – particularly in the healthcare sector. Huh.

The Institutional Limited Partners Association, a trade group for institutions investing in the asset class, generally supports the transparency of private-equity funds and the fees they charge, but opposes other restrictions on investors that Depending on the policy can reduce financial returns. Priorities group released this year. The group said it supports greater transparency and standardized expense reporting, but opposes new taxes on limited partners or restrictions on their ability to invest around the world, among other potential changes.

Biden administration officials have said they intend to raise the bar for the firms’ conduct. Securities and Exchange Commission Chairman Gary Gensler said last month that the agency was considering new rules regarding private-equity firm disclosures, and questioned whether fees by asset managers are too high.

“I wonder if there is enough transparency regarding fund investors [private-equity fund] fees,” Mr. Gensler said at the November 10 meeting organized by ILPA. “I am surprised that limited partners have the consistent, comparable information they need to make informed investment decisions.”

Outside of North America, investors see little potential for regulatory changes, according to a Collar Capital survey. The survey shows that thirty-five percent of European limited partners and 33% of the Asia-Pacific region expect more regulation in their domestic markets.