Fortune: Volcker Rule Already Stifling Private Equity Investment

Thursday, 16 Aug 2012 08:12 AM

By Dan Weil

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The Volcker Rule restricting banks’ private equity activity hasn’t even been implemented yet, but it’s already curbing private equity investment by banks.

The rule, part of the Dodd-Frank financial reform law, included several provisions to keep banks from making risky investments/trades.

One of those provisions banned bank investments in third-party private equity funds. The rule was supposed to be implemented last month but still awaits the final approval of regulators.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

That delay hasn’t done much for banks and private equity firms. "The banks are almost non-players at this point," Charlie Eaton, head of Eaton Partners, which helps fund managers raise capital, told Fortune.com.

One example is private equity firm Catalyst Investors. It began raising money for a fund in early 2011, but its past investors didn’t want to participate this time around.

That’s because they are banks and other financial institutions that felt hemmed in by the Volcker Rule.

"The banks had been investing in us off of their own balance sheets, and none of them came back," Brian Rich, Catalyst’s managing partner, told Fortune.com. "So we basically had to reinvent our limited partner base."

The uncertainty may well continue. House Financial Services Committee Chairman Spencer Bachus, R-Ala., has asked the financial industry to recommend different solutions than the Volcker Rule by Sep. 7.

"[W]e must consider legislative alternatives that will not stifle economic growth and job creation," Bachus said in a statement.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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