Dodd-Frank and Other Financial Reforms Create Headwinds for Today’s Private Equity Industry

Stiffer legislative and regulatory requirements imposed after the implementation of the Dodd-Frank Act in 2010 and the subsequent adoption of other financial reforms have created some strong headwinds for the private equity industry. Some observers say these changes are crimping PE’s ability to accelerate business growth and job creation in the U.S. economy, particularly in the middle market.

“In general, we as an industry are in favor of smart regulation and limits on leverage or other areas of mergers and acquisitions, because this helps to keep bad actors out of our industry,” says Gretchen Perkins, BBA ’86, a partner at Huron Capital Partners in Detroit. “However, we don’t support unnecessary regulations and requirements that have no bearing on the systemic risk of the U.S. financial system. It costs us money to implement them, and it costs taxpayers money to have the Securities and Exchange Commission monitor and audit us.”

The impact of public policy on the PE industry will be spotlighted during a panel discussion led by Perkins at the upcoming Michigan Global Private Equity Conference on Oct. 9. Panelists will weigh in on several key issues, including:

  • SEC reporting and auditing requirements that place excessive burdens on PE firms
  • Regulatory efforts to deter banks from financing corporate takeovers with high levels of debt
  • SEC pressure on PE firms to disclose fees and expenses charged to public pension funds and other investing clients
  • Tax reform proposals to eliminate tax deductions for interest payments on debt
  • Legislation aimed at taxing carried interest at the same rate as ordinary income rather than as a capital gain, which has a lower tax rate

Perkins says the private equity industry does not get the credit it deserves as the leading driver of jobs and sales growth in the middle market in the U.S.  From 1995 through 2013, U.S. private equity-backed companies grew jobs by 83.7 percent, while all other U.S. companies grew jobs by 27 percent, according to recent findings released by the Association for Corporate Growth. More than three-quarters of that growth came from the middle market.

“We do the hard work of buying and growing companies, investing in businesses and adding jobs while returning more dollars to pension funds, college endowments and other institutional investors and, ultimately, their stakeholders than any other asset class,” Perkins says. “This is the story that is seldom told.”

Check out these other private equity events taking place on Thurs. Oct. 8: Ross Fireside Chat: PE consulting career panel and student meet & greet at the Ross School of Business (https://www.facebook.com/umfiresidechats/); and the Women Who Fund Forum, designed to connect women-owned business leaders with women in the venture capital and private equity industries (http://www.bus.umich.edu/conferences/Women-Who-Fund/ViewConference.aspx

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