In the U.S. and Europe private equity firms have been forced to contend with more vigorous oversight in recent years. This, in turn, has created a cascade of compliance challenges. Perhaps the most important is the need to have an effective team capable of creating a compliance program designed to prevent the unwitting violation of relevant laws.
In some cases, firms have had to deploy resources from other areas of the organization in order to meet compliance challenges. Another problem: Not every firm has the internal expertise to create an up to date, viable compliance program. The risks of failing to satisfy regulatory scrutiny are severe. Reputational damage, heavy financial sanctions, and the inability to pursue business goals or structure deals in a certain manner (firms, for example, could lose access to derivatives markets or hedging capabilities) can all result from compliance problems.
Seeking the help of a trusted, third-party provider is one avenue for addressing these challenges. By partnering with an experienced third party that is current on all regulatory changes, funds can get back to focusing on core value-added activities and strategic investment goals — while also resting secure in the knowledge that compliance needs are being met.
What’s in store for the market?
While compliance burdens have undoubtedly increased in recent years, the record growth seen in the private equity market attests to the fact that opportunity abounds — even with tighter oversight. Robust global growth makes added compliance a burden worth shouldering.
Sectors that have proven durable in the face of economic turbulence in the past (medical technology, payment processing, healthcare and software, for example) are likely to remain attractive in the coming years. Technology continues to be a major market driver, with mobile, cloud and managed services leading the way.
In terms of regional performance, China’s economic growth, which has been gradually slowing over the last few years, could slow even further should the government opt for reforms in the wake of its upcoming 19th National Congress.
Canada is a place of increased interest, as PwC Canada reported that M&A activity through Q3 2017 rose significantly over the same time period one year prior (rising from 1522 deals to 1879). The U.S. remained the primary outbound destination, with deal volume jumping 27 percent.
No matter the political or regulatory environment, it seems that private equity will always find a way to get deals done. As we look forward into the New Year, there are many reasons to be optimistic about a strong 2018 with appropriate investor protections, robust returns, and a movement toward rightsized regulation for funds.
Ian Bone is the Senior Manager of Strategy & Innovation at CT Corporation, a legal services & compliance provider and recipient of the 2017 Deal Partner of the Year award from ACG NY in recognition of the 13,000 merger filings and 1.2M due diligence inquiries they handled the previous year. He is a member of the ACG New York Board as well as the Programming Committee. A finalist for 2017 Thought Leader of the Year from AM&AA and an ACG New York member since 2014, Mr. Bone has also continued in his role as Chair of the Champions Awards Gala and Vice Chair of the ACG University Committee.