Private equity and other investors may look forward to tighter regulation in the months and years ahead, if incoming Biden administration appointments are any indication. In this week’s roundup, we look at the Treasury, whose incoming deputy secretary said he would consider tougher regulation on PE in the future. We also focus on the Securities and Exchange Commission, which learned its likely future chairman will have a hearing next week. Biden’s SEC pick may also bring restrictions to the financial industry, according to experts. Finally, we summarize former SEC Chairman Jay Clayton’s next role, and a report showing how a government program helped private capital dollars reach small businesses.
Treasury Nominee Considers Tighter Private Equity Regulation
- An Obama-era adviser who will assist Treasury Secretary Janet Yellen to shape the nation’s financial policy if confirmed said he would consider using tools at the department to impose stricter regulations on private equity if it addresses inequality in low-income communities.
- Wally Adeyemo, President Biden’s pick for deputy secretary of the Treasury, fielded questions from lawmakers at his nomination hearing on Tuesday. Sen. Elizabeth Warren, D-Mass., asked if he was willing to use the Treasury’s Financial Stability Oversight Council, or FSOC, as a tool to address economic inequality—including recommending more regulatory scrutiny of private equity funds.
- “Some of these are regulatory but I think we have a number of other tools that we can use also to address these challenges,” Adeyemo replied to Warren. “They are issues that I care about personally and I look forward to working with the secretary on those issues, and also working with you to address them going forward.”
- FSOC is a government organization composed of the nation’s top financial regulators created by the Dodd-Frank Act in 2010 to identify and monitor risks to the U.S. financial system.
- Adeyemo previously served in the Obama administration as a deputy national security advisor and deputy director of the National Economic Council.
- During the hearing, Warren targeted PE firms, saying they “get rich off of stripping assets from companies, loading them up with a bunch of debt, and then leaving workers, consumers, and whole communities in the dust.”
- Warren has been a longtime critic of PE, which she has tried to reign in through legislation, including the Stop Wall Street Looting Act of 2019, despite evidence showing companies owned by PE firms create jobs faster than the wider business community.
Senate Sets Hearing for Biden’s SEC Pick
- Biden’s pick to lead the SEC will appear before the Senate next week ahead of a vote that would cement him at the agency’s top position, an appointment that could presage tougher oversight of the financial industry.
- The Senate Committee on Banking, Housing and Urban Affairs has set the nomination hearing for Biden’s pick for SEC Chairman, Gary Gensler, for March 1.
- Prior to Biden’s nomination, Gensler led the Commodity Futures Trading Commission throughout much of the Obama administration, where he revitalized the agency’s enforcement division.
- Gensler has made few public statements of his views on PE, but the SEC could return to large, headline-making fines against private equity, which became less common under Jay Clayton, who led the agency from 2017 through 2020, according to The Wall Street Journal.
- Gensler “got a lot done because he made a big splash” leading the CFTC, said Joe Weinstein, head of the securities and shareholder litigation practice at law firm and lobbying group Squire Patton Boggs. “I do think he’s going to try to send a message to whatever subset of the industry he is focusing on.” [Chris Cumming, The Wall Street Journal]
- Before taking reigns as SEC chair, Gensler must pass a full Senate vote, where democrats maintain a slim majority.
- SEC Commissioner Allison Lee is currently serving as acting chair until a permanent successor is confirmed.
Former SEC Czar Takes Seat at Investment Firm
- The former head of the SEC who oversaw a broad regulatory agenda under his tenure, joined the ranks of an investment firm last week.
- Apollo Global Management, a New York-based investment manager, announced that Jay Clayton has been appointed to serve as lead independent director of its Board of Directors—a newly-created role—following his service as chair of the SEC, which ended in December.
- “We undertook a thoughtful and deliberate process and are proud to have someone as distinguished as Jay serve in this newly created role that reflects the strong corporate governance enhancements we continue to implement,” Apollo Chairman and Founder Leon Black said in a statement.
- During his tenure at the SEC, Clayton focused on initiatives that promoted economic growth, investment opportunity, market integrity and investor protection, according to the firm.
SBA Program Helped Thousands of Businesses Access Private Capital: Report
- A program designed by the Small Business Administration has gathered support from hundreds of investors and aided thousands of small businesses, according to a recent congressional report.
- The SBA’s Small Business Investment Company Program, which launched under the Obama administration to expand private equity capital and long-term loan funds to small companies, has provided $32 billion from more than 300 private investors licensed through the program by September 2020, according to a report published by the Congressional Research Office.
- In 2020 alone, Small Business Investment Companies, or SBICs, provided nearly $1.8 billion in SBA leverage and invested another $3 billion from private capital for more than 1,000 small businesses.
- The SBA has committed $13.5 billion to the program over the course of the program’s lifetime, decreasing risk to investors and allowing small businesses to borrow at favorable rates.
- Some members of Congress have argued that the program should be expanded to stimulate economic activity. Others have proposed that the program target additional assistance to startup and early-stage small businesses, which have a higher risk, but have a high potential for job creation.
- The report’s authors concluded by saying additional data concerning SBIC investment impact on job creation and firm survival might be useful before additional support is authorized.
Benjamin Glick is an associate editor of Middle Market Growth.