The Rise of the Dodd-Frank Act: How Dodd-Frank Will Likely Impact Private Equity Real Estate
University of Pennsylvania Journal of Business Law, Vol. 16, No. 1 (Fall 2013)
132 Pages Posted: 7 Sep 2013 Last revised: 19 Jan 2017
Date Written: January 31, 2014
This paper argues that the Dodd-Frank Act attempted to prevent against systemic risks in response to the financial crisis of 2008, but poses over-regulation dangers on private equity real estate, which the regulators acknowledged weren’t the cause of the financial crisis. The author examines private equity real estate along three axes of systemic risk contributors, aggregate industry size, financial connections and synchronization with other schemes and markets, and further compares private equity real estate funds to hedge funds, which have been viewed by some as posing systemic risks. The unraveled evidence strongly suggests that private equity real estate doesn’t give rise to systemic risk concerns, yet the Dodd-Frank Act threatens to subject private equity real estate advisers to tightened regulations, which impose considerable compliance costs and particularly burden small and/or start-up firms. To assist private equity real estate advisers with their new paths through the regulatory landscape, this article provides a complex compliance framework that could potentially help them restructure their funds to minimize the impact of the Dodd-Frank on their compliance burdens. The author believes that the SEC should accept these new paths as part of the new regulatory landscape for private equity real estate, given the policy reasons expressed in this article. The author further strongly recommends that the regulators not apply the Volcker Rule against private equity real estate. Recognitions of these new paths and limiting the application of the Volcker Rule would increase transactional certainty for private equity real estate, foster their freedom of choice to select the best regulatory path, and most importantly, avoid the dangers of over-regulation for private equity real estate.
Keywords: private equity, private equity real estate, securities, Dodd-Frank, Advisers Act, Investment Company Act
JEL Classification: K22, K23
Suggested Citation: Suggested Citation