Antitrust, cybersecurity and whistleblowing are the key regulatory areas US private fund managers should focus on at a fund and portfolio company level, despite the uncertain future of financial regulation, according to law firm Foley.
Republicans are perceived to be more lenient in their approach to mergers, but tough enforcement against collusion and price fixing should remain, the firm said in a client note. This could impact the acquisition and exit strategies for private equity funds that own companies in concentrated industries.
“Our expectation is that antitrust enforcement will continue to be strong, and the same is likely to be true with regard to the enforcement of fair competition laws abroad. Ensuring antitrust and fair competition compliance at portfolio companies will continue to be an important risk-management requirement for fund managers,” the firm said.
On cybersecurity, the firm noted it is likely the Securities and Exchange Commission and industry-specific agencies will implement regulations aimed at tightening data protection. Financial and healthcare firms will under particular scrutiny.
“Funds need to have a firm handle on the vulnerability of their portfolio investments to such attacks and have strong compliance measures designed to fight off such electronic intrusions.”
Whistleblowing provisions are likely to remain in place even if the Dodd-Frank Act, where they were introduced, is repealed in full or in part. The level of resources devoted to compliance should remain intact because of the size of potential penalties, the firm said.
Whistleblower rules are even more pertinent at private equity firms, because they can be employees of either the fund or the portfolio company.
“Private equity funds often have employees who may know about issues across the full range of portfolio companies. This gives employees the potential to become whistleblowers across multiple companies at the same time,” the firm said.
It can also be more difficult to detect compliance lapses that can lead to whistleblowing opportunities because many funds do not directly manage their portfolio companies, the firm said.