Regulation that has emerged in the United States since the financial crisis, particularly as it focused on financial markets, has prevented meaningful growth, according to several private equity market participants who spoke at the 2017 Milken Institute Global Conference in Los Angeles on Monday.
At the same time, foreign institutional investors also indicated they are closely watching regulatory progress from the Trump administration to determine whether they focus more heavily on infrastructure investments in the US.
“The system is safer [than prior to the crisis] but it's also so safe we don't have any growth,” said Barbara Novick, vice chairman at BlackRock. “It's very wasteful.” Novick was talking during a panel on financial regulation.
Tony James, president and chief operating officer at Blackstone, also noted on a separate panel on macroeconomic outlook that the system is safer but warned about excesses of over-regulation.
“It almost became a feeling of a police state,” James said. “I am all for regulations but when the referee is trying to steer the game, it gets out of whack.”
During a panel on global institutional investors discussing investment opportunities, some limited partners agreed there's a strong need for deregulation.
China Investment Corporation noted it is interested in investing in private equity, private credit and early-stage venture capital, as “finding good managers can really enhance your returns”, said Xiaoliang Zhao, head of fixed income and absolute return at CIC.
He also indicated that CIC is interested in doing direct investing in private equity but said it has been challenging. “It's hard because of the policies and regulations.”
Mike Sommers, president and chief executive officer of the American Investment Council, said that financial deregulation has been slow to come from the Trump administration in part because of the lack of people.
“They simply don't have the personnel at this point to do any of the big deregulation that they want to do,” he said.
Meanwhile, limited partners' expectations on infrastructure differed. Australia's Victorian Funds Management Corporation, for example, is interested in investing in US infrastructure but with the caveat that the Trump administration creates a framework first.
“On the illiquid side, we'd love to do more on infrastructure, but that would require to have more regulation to really open that up,” said Lisa Gray, chief executive officer at Victorian Funds. “An infrastructure programme in the US would be very helpful. It's all about how well they're going to be able to execute.”