The winds of change blew through the funds industry in 2016, propelled by two huge international news stories that threatened the way private funds go about their business.
The leak of more than 11 million confidential documents in Panama raised some very awkward questions about the way offshore domiciles operate. Britain’s unexpected decision to leave the EU then added a whole wave of uncertainty into what has become an increasingly difficult regulatory environment.
The good news is the industry has reacted by doing what it does best: adapt in the face of adversity. The initial shock has given way to a realisation that things aren’t quite as gloomy as initially predicted. There may even be opportunities for London to reinforce its jurisdiction as the private fund domicile of choice, according to some sources.
But there is little doubt that the regulatory landscape is getting more challenging. The combination of an emboldened Securities and Exchange Commission – the US regulator doubled the number of fines in the private equity industry in 2016 – and limited partner pressure for more transparency has forced private equity firms to review their fees and expenses and valuation policies.
That was a key message from PEI Media’s 2016 PEI CFOs and COOs Forum where the scale of the increased investor reporting requests was highlighted. LPs are now four times as likely to name reporting as their number one area of concern for private equity funds than they were in 2014, according to an EY investor survey unveiled at the event.
They say things come in threes, so perhaps it was not so surprising that Donald Trump swept to victory in November’s presidential election. It’s still too early to be sure exactly what it will mean for the funds industry, but many fear that a tax overhaul could signal changes to the treatment of carried interest. His appointment could be good news for the infrastructure sector, however, with the promise of investment incentives designed to attract billions of dollars in financing.
Hopefully 2017 will answer some of the questions raised by the events of 2016.