President Obama’s statement calling for US banks to be banned from “owning, investing in or sponsoring” private equity and hedge funds could have a very significant impact on the alternatives industry. US banks account for 5% of private equity investors in the US by number, and represent around 9% of the capital invested in the asset class. The effect would also be felt further afield, with many US banks holding investments in European and Asian private equity funds. US banks’ presence in hedge funds is smaller, representing 0.9% (approximately $10bn) of the total capital coming from US investors.
However, the wider effects on hedge funds could be much greater: Preqin monitors 19 fund of hedge funds units of major US banking institutions, all of which could be affected by these restrictions. These funds of funds represent over $180bn in assets, or approximately 16% of all US capital flowing into hedge funds.
Banks also own important private equity fund manager and fund of funds manager operations. US banking institutions managing private equity funds and fund of funds have raised a total of 60 funds since 2006, with a total value of over $80bn. In total, banks have $50bn in private equity dry powder (i.e. capital available to them to spend on new investments).
For more information on US banks’ involvement in alternative asset classes and more on the wider effects that this proposal could have, please click here to see our latest press release.