Question

How JOBS act affect private equity investment in the near future?

Answer 1

Prior to the JOBS Act, general solicitation and advertising or the placement agent did not a preexisting relationship. After the JOBS Act, advertising and general solicitations are permitted as long as sales are made only to accredited investors. Some of the effects in the near future would be as follows.

• Now, there is a continuous scrutinization of preformation claims made by hedge fund and private equity sponsors so this moderation somehow put restrictions and affects indirectly in the long run for potential investors.
• Those hedge funds and private equity sponsors who are not qualified for SEC registration will have to consider restrictions on advertising imposed by states under which they are registered.
• There would be limitations and impacts on the structuring of funds as the JOBS Act increases the threshold from 500 shareholders to 2000 persons for registration under the Exchange Act for becoming a public Company.
• This Act although made simplification for the registration of securities but permit offers and sales of securities of up to $ 50 million. Thus, so-called "crowdfunding" will not be available to raise funds for a private equity group or hedge fund.
• The Sweeping tax overhaul includes several provisions relevant to private equity investment strategies, such as an increase in the holding period for long-term capital gains with carried interest and restrictions on some deductions.
• Limits deductions for losses and restricts interest deductibility at 30% of gross earning, thus making debt less attractive.
• Will have a significant impact on both debt funds and buyout transactions due to the new limitations on interest expenses deductions. If the interest rate rises sharply in the future, then investment appetites for these funds may begin to wane.
• A prolonged private equity holding period can have an adverse impact on the private equity firm.