Back to School: Managers say regulation down, cybersecurity top threat

  • US enforcement climate said to have eased
  • SEC actions quieter under Trump, Clayton
  • 73 pct say cybersecurity biggest risk of 2018

More than half of alternative-asset managers say regulatory enforcement is down under the Donald Trump administration, according to a study from fund administration software provider Koger.

Two hundred hedge-fund and private-equity executives took part in the online survey in January. While 56 percent say enforcement has become more lax of late, fully 85 percent view regulation in the U.S. as more hands-off than it is internationally.

Accordingly, more than three-quarters of respondents view regulatory and compliance issues as less of a concern than they used to. For 52 percent, reputational risk has eclipsed regulatory risk, though 73 percent expect enforcement to step back up under a future administration.

These findings are in line with the SEC’s recent tone. In a speech last October, Commissioner Michael S. Piwowar said the agency was “proceeding down a new path. In fact, the current direction of the Commission is such a complete change from the past few years that we could appropriately call it ‘SEC 180.’”

Piwowar was referring to a move away from implementation of the Dodd-Frank Act, as well as former Chair Mary Jo White’s “broken windows” approach to enforcement.

Under Jay Clayton, Trump’s choice to lead the SEC, the agency seems to have adopted a less public style of enforcement. Bloomberg reports that a settlement with TPG Capital over monitoring fees was disclosed inconspicuously just before Christmas, in contrast to highly touted punishments of Blackstone Group, KKR and Apollo Global Management for similar infractions. TPG also paid $13 million, while the other firms each shelled out at least $28 million.

Clayton spent his pre-SEC career at the law firm of Sullivan & Cromwell, representing Wall Street clients. In his confirmation hearing, he criticized “unnecessarily complex regulations” and a “gotcha” approach to enforcement. According to Piwowar, under Clayton’s leadership the SEC is “taking a fresh look at how the agency can better facilitate capital formation,” an overlooked aspect of its mission.

Piwowar also said the SEC was putting enforcement resources to better use “by focusing new efforts on emerging threats through the creation of a specialized Cyber Unit.” This priority also matches manager sentiment: In Koger’s survey, 73 percent cited cybersecurity threats as the biggest risk on the horizon in 2018, ahead of a market correction (67 percent), geopolitical risk (38 percent), an economic downturn in the U.S. (31 percent) and an international pullback (31 percent).

Action Item: Read Koger’s announcement of complete survey results here.

Young child holding stack of books and back to school written on chalk blackboard. Photo courtesy BrianA.Jackson/iStock/Getty Images