Outlook 2012: The regulator's pen

While the private equity industry is generally not well understood by policymakers, regulatory developments in 2011 demonstrate the prevailing belief among governmental bodies around the developed world that the private equity industry merits regulation.  

The last year saw regulation affecting private equity in the form of the US’s Dodd-Frank Act and FATCA, and the EU’s AIFMD, among other new regulations. Carried interest, sovereign wealth funds and other issues continue to be discussed by lawmakers. 

For regulatory bodies, the private equity industry’s size and visibility within the global economic system fosters a perception that it is simply too large to ignore. 

Unfortunately, this belief that private equity must be regulated, combined with a lack of deep understanding of the private equity industry, may result in sub-optimal regulatory developments for private equity.

It’s time for private equity market participants to embrace this new reality: regulatory bodies will focus on private equity as they consider new regulatory schemes for the financial services industry as a whole. The days of being exempt from regulatory schemes are over.

In the coming year, the private equity industry must focus on its long-term imperative: to continue a dialogue with government officials in key jurisdictions around the world to foster understanding of the industry and demonstrate the economic growth that is created by private equity’s value-added investing and value-added corporate governance model.