PineBridge: Opportunity in regulation

Regulatory changes forcing banks to shed private equity teams have produced a wave of spin-offs in need of seed capital.

In some cases, more regulations can actually be a good thing.

Rules limiting banks' ability to run their own private equity operations are creating opportunities for institutions to seed highly talented managers, said chief executive officer of PineBridge Investments, Win Neuger.

“Today, you have very, very talented people who are starting businesses,” Neuger said at a media event Thursday. “It’s a great opportunity [for] seeding.”

The opportunity is enhanced today because of the dearth of investors willing to cough up seed capital.

“A few years ago you didn’t have to have any talent in my opinion,” Neuger said. “If you could claim some level of experience and you’d been an analyst for four months somewhere, you [started a fund] and all of a sudden you got a few hundred million dollars.”

Neuger, speaking at a PineBridge presentation Thursday morning, knows about running spin-offs. His firm spun out of AIG in 2009 after Hong Kong billionaire Richard Li agreed to buy AIG’s external asset management unit for $500 million.

In recent months, banks have been shedding private equity teams as a way of complying with capital requirements outlined by new regulation such as the Volcker rule, which has created restrictions on banks’ abilities to invest in or sponsor private equity and hedge funds based both within the US and abroad. In addition, the Basel Committee on Banking Supervision’s new international standards – dubbed “Basel III” – will also restrict banks’ abilities to run in-house private equity operations on a global scale.

Last month, two former Goldman Sachs managing directors launched independent private equity firm New MainStream Capital, backed by fund of funds and secondaries investor Pantheon.

Also in December, Headland Capital Partners completed its spin-out of HSBC Bank. The management-led buyout of HPEA was first announced in September, after HSBC stated in June that it was considering selling five of its private equity fund management businesses as part of a global initiative “to meet the requirements of a changing regulatory environment.”