The Volcker Rules was implemented by the Obama administration on the heels of the ’08 financial crisis. It placed restrictions on big banks preventing them from investing in VC funds and other high risk derivatives due to their speculative nature. On June 25th the FDIC (FDIC Announcement) announced that they have amended the Volcker Rule to loosen restrictions on big banks to once again allow them invest in Venture Funds, Credit Funds and Family Wealth Management vehicles. Goldman Sachs, Credit Suisse and the National Venture Association championed the move citing that private & venture backed companies are an important driver in economic innovation and job creation.
The Department of Labor (See Story from Forbes here) also recently made regulation changes allowing 401K’s to divest in private funds as well as easing the rules to allow more participation in equity crowdfunding a trend has emerged that politicians and regulators are looking to open up avenues to allow for investment in private and venture backed companies. It will be interesting to see if these changes drive increases to the already record numbers of “dry powder” that has been earmarked for private investment vehicles.
Pre-COVID we had already begin moving into a ZIRP economy (zero interest rate policy) to help stimulate growth in what was a booming economy. With the potential damage from the coronavirus pandemic, central banks will be forced to keep interest rates low to help encourage lending as the world recovers. With this trend looking to extend into the foreseeable future it isn’t a surprise that governments and regulators are looking to open up other avenues for institutions, investors and individuals to place resources into private funds and businesses hoping for healthy returns.