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Top Ten Regulatory and Litigation Risks for Private Funds in 2022

Last year, we wrote, “The regulatory and litigation risks for private funds are greater than at any time since the financial crisis in 2008.” That statement is even more true today. The Wall Street Journal recently published separate front-page stories on an SEC initiative to oversee large private companies and the explosive growth of the private credit industry (suggesting a more active phase of regulatory oversight). Growth itself is not necessarily a risk, but disputes – and regulators – tend to follow capital.

Private funds are now an integral part of the global economy and, as a consequence, are affected by it. Currently, there are massive structural changes occurring simultaneously across industries and the economy as a whole. For example: cryptocurrencies could threaten legacy payment systems and currencies; the electrification of the auto industry may lead to obsolescence of the internal combustion engine; and climate change will increase the ESG groundswell. These changes are not merely disruptive; they are transformative.

Meanwhile, the macro economy is undergoing a sea change. Inflation is higher than at any time since 1982. Inflation will lead to higher interest rates – sparking changes in investment assumptions and behaviors conditioned over decades to a low inflation environment.  In response, the federal government is ending early its policy of quantitative easing which it continued as part of the response to the pandemic.  These changes are happening as we enter the third year of the pandemic which has disrupted every part of society, not just supply chains.

Direct government action may spur even greater changes. Antitrust, privacy, and cybersecurity enforcement – and the threat of enforcement – is palpable and likely to cut across sectors in the coming months, especially tech. China has undertaken its own crackdown on tech that reflects policy choices at the highest level of government – which may persist for decades. Finally, geopolitical tensions are likely to rise, especially if Russia invades Ukraine, which may cause markets to shudder.

These are merely some of the known risks.

None of this is to say that we are concerned for the private funds industry. It will continue to flourish. Consumer confidence and spending remain robust, capital (for now) remains historically cheap, and private equity investment is strong. But the benign market and relatively benign regulatory environment of the last decade is unlikely to persist. Accelerated change and volatility are coming, and together they are likely to result in more disputes and regulatory inquiries.

With that backdrop, we have developed this list of Top 10 Regulatory and Litigation Risks for Private Funds in 2022 to assist sponsors and managers to assess their own risks and take steps to mitigate their risk profile. We will be publishing a series of posts on each of these topics in the weeks ahead.

  1. Decentralized Finance: The Next Frontier of SEC Enforcement

  2. Treating “Like for Like”: SPAC Disclosure, Marketing and Gatekeeping in 2022

  3. ESG: Practical Points For Where Market Practice and Legal Trends Collide

  4. Regulatory Shake-Out on Digital Assets: An Industry Waits for Additional Guidance

  5. Economic Sanctions and Asset Seizures: An Important Focus for the Biden Administration

  6. Increased Regulatory Focus on Privacy and Cybersecurity for Private Funds in 2022

  7. Insider Trading, MNPI and Related Internal Controls: A Renewed Focus by the SEC

  8. The Trend of Increasing Disclosure Obligations for Private Funds Continues in 2022

  9. Conflicts of Interest: How High Will the Bar Be Raised

  10. Portfolio Company Risk: Plaintiffs Set Sights on Sponsors and Boards of Directors

 Dorothy MurrayJoshua M. NewvilleTodd J. OhlmsSeetha RamachandranJonathan M. WeissJulia AlonzoJames AndersonJulia M. AnsanelliWilliam D. DalsenAdam L. DemingReut N. Samuels and Hena M. Vora also contributed to this update.

© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 33
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About this Author

Partner

Steven Baker is a partner in the Litigation department and a member of the International Arbitration group. He has over 25 years of experience advising clients on complex, often multi-jurisdictional disputes in a wide range of industries, including asset management, technology, life sciences, financial services and defence sectors. He also has extensive experience advising upon and managing disputes for clients involving major technology or telecommunications projects and their financing, technology licensing and misappropriation of trade secrets.

...
+44.20.7280.2238
Margaret A Dale, Commercial Litigation, Proskauer Rose Law Firm
Partner

Margaret Dale is a Partner in the Litigation Department, resident in the New York office. Her practice focuses on commercial litigation, including class action defense, as well as intellectual property, privacy and data security, corporate governance litigation, securities litigation, and regulatory and internal investigations. She also represents and counsels clients in art law matters. 

212.969.3315
Michael R. Hackett, Litigation Attorney, Proskauer Law Firm
Associate

Michael R. Hackett is an associate in the Litigation Department and a member of the Asset Management Litigation practice. His practice focuses on disputes and regulation involving private funds, including private equity, venture capital, hedge, real estate and private credit funds, as well as other limited partnerships, where he regularly advises funds, fund sponsors, investment advisers and institutional and individual investors.

Mike’s experience representing private fund clients runs the gamut, from control contests within advisers, to...

617-526-9723
William Komaroff Litigation White Collar Attorney Proskauer Law Firm New York
Partner

Bill Komaroff is a partner in the Litigation Department and White Collar Practice Group. He has a nationwide federal practice focused on corporate defense and investigations, counseling and defending institutional and individual clients in connection with a broad array of complex government investigations, prosecutions and civil disputes.

Bill also has served as a member of the Criminal Justice Act Panel for the District Court for the Southern District of New York.

From 2003 to 2007, Bill served as an Assistant U.S....

212-969-3975
Kirsten Lapham FInancial Services Attorney Proskauer Rose Law Firm, United Kingdom
Partner

Kirsten Lapham is a partner specialising in financial services regulation. She advises a broad range of both institutional and individual clients on a variety of financial services regulatory and compliance issues. Her practice has a specific emphasis on the regulatory issues arising under the AIFMD, and MiFID II for a range of EU and indirectly impacted firms outside of the EU.

Experience in this area includes advising multiple clients on the EU marketing and registration regimes and overlaying local regulatory considerations, such as the U.K. retail distribution...

+44.20.7280.2031
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