Private equity: bank regulators tighten the collar on leveraged loans
NEW YORK, May 11 (Business Law Currents) – With the leveraged finance market coming back to life, bank regulators want financial institutions to seriously tighten oversight and maintenance of their leveraged portfolios. Leveraged loans are heavily utilized by private equity shops for their transactional activities but there is an ever-increasing concern that while loan volume has gone up, underwriting practices have deteriorated to unacceptable standards.
On March 26, 2012, bank regulators released proposed guidance on leveraged lending for public comment. The Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency have proposed revising previous guidance issued in 2001 on leveraged finance as greater scrutiny is being placed on financial institution based risk factors. Proposals in this sector could potentially impact private equity shops by affecting one of their primary sources of funding for acquisition deals. (more…)
U.S. SEC set to monitor private equity funds, official says
By Stuart Gittleman
NEW YORK, May 8 (Thomson Reuters Accelus) - Many of the world’s top private equity funds will soon be examined by the U.S. Securities and Exchange Commission, Carlo di Florio, director of OCIE, the SEC’s Office of Compliance Inspections and Examinations, said.
Fourteen of the 50 largest hedge fund advisers in the world, and 18 of the 50 largest private equity funds in the world, are newly registered with the SEC under the Dodd-Frank Act, di Florio said at a private fund compliance conference in Manhattan last week. (more…)
If the founder of Bain Capital becomes president of the US, will all of these attempts to monitor funds for risk and criminal activity become toothless or eliminated? Don’t these firms virtually run the government already?
Foreign private equity braces for rough ride to China -ANALYSIS
Helen H. Chan
HONG KONG, May 20 (Business Law Currents) Foreign-invested private equity firms are rallying in Shanghai, eagerly awaiting the results of a second round of applications for the Qualified Foreign Limited Partners (QFLP) scheme. In recent weeks, large international buyout firms such as Blackstone and the Carlyle Group have rejoiced over being some of the first to be awarded a QFLP license.
Although the QFLP seems to have gone one step further in liberalizing private equity deals between foreign investors and domestic targets, perks of the scheme come with a tangle of very sticky red tape. Recently, financial authorities in Shanghai have published several guidelines to facilitate the second round of approvals for QFLP licenses. Aiming to aid domestic entrepreneurial efforts, the newly-issued requirements appear to favor applicants with connections to government-backed funds and homegrown Chinese enterprises.
Established in early 2011, the QFLP permits licensed non-Chinese private equity firms to convert foreign currency into renminbi for onshore investment in China. Once approved, a firm may convert foreign currency, up to a quota permitted by its license, without approval by the State Administration of Foreign Exchange (SAFE).
Previously, SAFE approval was required for every single foreign exchange transaction. Under the QFLP scheme, qualified foreign private equity firms can launch RMB-denominated funds using overseas capital. For more information, please see PRC Private Equity: Destination Shanghai?
Recently, the Shanghai branch of SAFE and the Shanghai Financial Services Offices have issued several guidelines which will be used to review applications for a QFLP license. In addition to considering large buyout firms, authorities have indicated a desire to look at technology-focused funds and firms that support small to medium Chinese enterprises.
Aside from examining whether applicants have concrete investment and capital contribution plans, applicants will be vetted on whether their management team has relevant PRC experience and a successful track record of investing in China.
COLUMN-Carried interest and the big lie: James Saft
(James Saft is a Reuters columnist. The opinions expressed are his own)
By James Saft
Greensboro, Alabama, May 31 (Reuters) – As an investment strategy, making private equity and hedge fund managers rich is a probable loser. As a tax policy, it is a guaranteed one.
The U.S. House of Representatives passed a bill last week that would raise the taxes that private equity and other investment managers pay on “carried interest,” their share of the takings when a holding such as a startup or turnaround is sold at a profit.
Carried interest is currently taxed at the lower capital gains rate, meaning that many private equity barons can pay less in tax than the people who clean their swimming pools or mind their children. This is patently unjust. Carried interest is compensation for labor, earned income in other words, rather than gains on capital that might be lost.
As you might expect, the private equity industry is not happy:
“Remember we manage money for union employees, for corporate employees, for teachers, firemen and the like and our job is to help these unions and pension funds protect their employees when they retire. This is why private equity needs to have the treatment we have to attract the best and brightest to this sector.” Robert L. Johnson, of private equity firm RLJ Companies told CNBC television.
FACTBOX-How European rules will curb hedge funds
May 19 (Reuters) – The European Union’s 27 countries and the bloc’s parliament agreed to tighten controls of hedge funds and private equity this week.
Negotiations will now begin between the two to hammer out a final version of the law to regulate the secretive industries by 2012.
Although some issues remain contentious, such as how the new law will treat foreign funds, both parliament and European countries have committed to set up broad controls on a sector many suspect exacerbated the financial crisis.
Here are the highlights from the new law:
* The directive does not lay down a rigid code of rules with caps on borrowing or pay but sets up a “regulatory and supervisory framework” for watchdogs to police hedge funds and private equity.
* It will put hedge funds under the eye of what one senior industry figure dubbed ueber-watchdogs, giving those authorities the power to demand closely-guarded information about how the fund invests or borrows as well as to intervene with curbs.
* Many are sceptical the new pan-European supervisors will have the teeth to enforce order on this financial-services elite. Britain is pushing to water down the power of these new enforcers, while parliament is arguing to give them more clout.
Australia tax body may harden stand on private equity
By Victoria Thieberger MELBOURNE, April 21 (Reuters) – The Australian tax office has delayed two critical rulings on how private equity firms are taxed, in a move that tax experts say means the office is hardening its stance against private equity. (more…)
US watchdogs may still get ‘Volcker rule’-consultant
FRANKFURT, April 12 (Reuters) – U.S. banking supervisors could get indirect powers to ban proprietary trading by banks even if the “Volcker rule” is not in the financial reform bill, a banking consultant with close contact to decision-makers said. (more…)
FACTBOX – How does the EU plan to shake up financial services?
BRUSSELS, April 7 (Reuters) – The European Union (EU) is embarking on an overhaul of financial services that politicians hope will send bankers back to their roots of no-frills lending to households and business.
Michel Barnier is the EU commissioner in charge of the shake up on regulations ranging from curbs on banker pay to a clampdown on speculators betting on government debt.
Here is a guide to the overhaul:
* One of Barnier’s priorities is writing a rule book for trading derivatives, a financial instrument whose value is linked to an asset such as a government bond or currency.
Pushed to the top of the agenda after politicians blamed speculators for worsening Greece’s borrowing problems, the European Commission will in June propose broad controls on market betting.
As part of a drive to force more transparency in the $600 trillion off-exchange derivatives market, Barnier will demand that traders either record their positions, or buy and sell through a central counterparty or exchange.
In October, the Commission will propose controls for short selling and credit default swaps in government debt — a form of insurance.
Spain tightens proposed hedge fund rules
By Huw Jones LONDON, Feb 16 (Reuters) – European Union president Spain tightened proposed rules to regulate hedge funds and private equity groups, prompting accusations of protectionism from within the industry but potentially speeding up moves towards a deal. (more…)
ANALYSIS-Private equity firms brace for tax battle
By Megan Davies and Kim Dixon NEW YORK/WASHINGTON, Feb 7 (Reuters) – Private equity firms are again being threatened with higher taxes, as a long-running debate over how to classify their profits again becomes a focus for governments desperate for cash. (more…)
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