Regulation is ‘greatest risk’ for PE managers

Private equity managers are most concerned about the risks regulation poses to their business, but also say it is the factor they are least prepared for, according to a report by law firm Ropes & Gray.

In a survey of 50 private equity professionals including CEOs, CFOs, general counsels and compliance executives, regulation and compliance was ranked the most important risk, followed by tax developments and sanctions or export controls.

Some 64 percent of respondents said their firm was ‘the least prepared’ for regulation and compliance risk, followed by 32 percent who selected anti-money laundering.

“There’s uncertainty about how regulatory agencies may react – whether they’ll become more or less interventionist, whether there will be policy changes such as greater protectionism,” said Ruchit Patel, a partner at Ropes & Gray, in the report.

Examples of this uncertainty include the large-scale changes to tax proposed in the US, and a continued lack of clarity on financial services’ access to the EU post-Brexit.

This was reflected in the report by 14 percent of managers rating the UK and the US the second riskiest markets to invest in after China.

Managers are beefing up budgets in response – 56 percent of respondents said they would increase spending on regulation and compliance over the next year, with cyber security a budget priority for 30 percent of respondents.

However, managers’ confidence was high in other areas – 38 percent felt ‘best prepared’ for corporate social responsibility and supply-chain risks, and 34 percent felt best prepared for enforcement or investigations by regulators.