Private equity: What Volcker rule?


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With public markets shaky, there is demand for private equity, and banks want to be in on it despite regulatory threats.

The Volcker rule still lurks, threatening banks’ involvement in private equity and hedge funds, but it seems Wall Street is marching on regardless. Citi is reportedly looking to raise $3.5 billion of private equity and hedge fund capital, and JPMorgan is pushing ahead with talks to buy Gávea Investimentos, a $5 billion Brazilian hedge fund and private equity group.

Banks have been pressuring Congress for exemptions to the part of the proposal that inhibits them from having interests in private equity and hedge funds, and the moves by Citi and JPMorgan seem to point to confidence that they will succeed.

So just why are Citi and JPMorgan prepared to rock the boat? The answer might lie with the decision of a small California-based solar manufacturer called Solyndra. The firm had been planning a well-publicized IPO since December but in June announced that it would instead tap $175 million of private capital from backers including Argonaut Private Equity, Masdar Abu Dhabi Future Energy Company and Richard Branson’s Virgin Green Fund. After an appalling 2009 and a mediocre first quarter this year for fund raising, it seems private equity is back.

Public markets are just too much of a gamble right now. An estimated 30-plus firms globally withdrew their IPOs from May to the middle of June. And if firms such as Solyndra are turning to private equity, investment banks will certainly want to make sure they are in the game. Not that private equity is the easy route. The proposed $15 billion buyout of US-listed Fidelity National Information Services by Blackstone, Thomas H Lee Partners and TPG Capital fell through in May, with Fidelity opting for a leveraged recapitalization instead. But the mere talk of such a mega-deal indicates a turn towards private equity.

Add in private investors’ nerves about buying into IPOs and quest for investments based on fundamentals that are not subject to volatility, and it makes sense that banks with large private-client networks need to offer private equity as a potential investment opportunity.