Yesterday during testimony to the House Financial Services Committee on Financial Regulation, Treasury Secretary Henry Paulson said there is a forthcoming plan to allow private equity firms and hedge funds to invest in banks. Right now, private investors cannot accumulate more than a 9.9% stake in banks without bumping into regulations, but this could rise as high as 24.9%. According to Pensions & Investments:
If the Fed allows private equity firms and hedge funds — using asset pools set aside for longer duration investments known as “side pockets” — to take larger stakes in banks, the number of private equity-backed financial services transactions alone could double to about 15% of the U.S. stock-market capitalization, said Monte Brem, chief executive officer at Stepstone Group LLC, a La Jolla, Calif., alternative investment consulting firm.
According to P&I, the proposed regulatory changes are good for private investors for 2 reasons: (1) they come at a time when banks are severely distressed so any outside investments would be great for returns for any investors on a forward looking basis, and (2) banks capital requirements are being raised so they need sources of outside capital. Private equity firms are definitely getting ready for the proposed changes:
TPG is reportedly aiming at raising a $6 billion fund, TPG Financial Partners, to take minority stakes in large financial services firms. Specialist financial services firms raising funds include Pine Brook Road Partners LLC, raising $2 billion; DLB Capital LLC, $1.5 billion; Dubai Islamic Bank, $1 billion; and Equifin Capital Partners, $500 million fund. Stone Point Capital LLC closed on its $2.25 billion Trident IV fund last year.