SEC approves Volcker rule as market watchers express concerns

Arthur Levitt, the former SEC chairman and now Goldman Sachs advisor, told Bloomberg that financial sector lobby groups would delay regulatory change in anticipation of the White House and the Senate falling under Republican control. He added that some firms would likely consider giving up their status as bank holding companies to avoid the additional compliance costs.

The rule, a key part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is intended to scale back the risky trading by banks that contributed to the global financial crisis. In addition to banning proprietary trading, it imposes restrictions on banks' commitments to private equity and hedge funds.

The rule allows banks to invest up to 3% of their tier-one capital in private equity and hedge funds, but prevents them from owning more than 3% of any single fund. According to one estimate, US banks had $100 million in alternative investments on their books in 2008. Other market watchers say that Bank of America, JPMorgan, Citi, Wells Fargo, Goldman Sachs and Morgan Stanley have $622 billion in tier-one capital between them.

Some banks have responded to the Volcker rule - and the increased capital requirements that come with Basel III - by offloading LP interests in private equity funds. This has created an obvious opening for secondary investors.

AXA Private Equity has raised $3 billion for its fifth secondary fund, according to reports in August. In the last 18 months, it has bought more than $5 billion in private equity portfolios from banks, including Barclays, Citi and Bank of America Merrill Lynch (BofAML). Lexington Partners also been active, spending more than $1.9 billion last year on portfolios put up for sale by Lloyds and BofAML and teaming up with StepStone to purchase of $1.1 billion in private equity assets from Citigroup.

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• Topics
• North America
• Regulation
• Secondaries
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• USA
• regulation
• Secondaries
• AXA Private Equity Asia
• Lexington Partners