Jerome Powell: PE’s man in Washington?

An industry veteran who has signaled he's willing to re-examine the Volcker Rule to make it more efficient, is the new head of the world’s most powerful central bank.

The US Federal Reserve has a new chair, and he’s a private equity insider.

Jerome “Jay” Powell was nominated as head of the world’s most powerful central bank on Thursday by president Donald Trump in a move that is likely to be welcomed by the private equity industry and financial markets alike.

A Federal Reserve board of governors member since 2012, Powell has signalled he’s willing to re-examine regulatory regimes and evaluate whether they can be made more efficient. At a Reuters event in October, Powell said the Federal Reserve was committed to “revising and refining” the Volcker Rule in order to make it “more effective, efficient and focused.”

Banks have previously sold private equity stakes on the secondaries market due to Volcker, a part of the Dodd-Frank Act that restricts banks from holding more than 3 percent of their tier one capital in private equity.

If confirmed by Congress, Powell’s appointment would mean private equity has a former Carlyle executive with experience setting up his own private investment firm in Washington DC.

Who is Jerome Powell and what’s his connection to PE?

A lawyer by training who has been a member of the Fed’s board of governors since 2012, Powell worked for Carlyle between 1997 and 2005. He’s credited with founding the global investment firm’s industrial division within its US buyout fund.

After Carlyle he formed Severn Capital Partners, a private investment firm which focuses on speciality finance and opportunistic investments in the industrial sector. In 2008 he joined Washington DC-based Global Environment Fund, a private equity and venture capital firm that invests in clean technology, emerging markets, and international forestlands.

He also has investment banking experience, having spent six years at Dillon Read.

What powers will Powell have that directly affect private equity?

Beyond monetary policy, one area of particular interest to the private equity industry that Powell will exert influence over is the implementation of regulation, in particular Volcker.

Areas that may alleviate industry “pain points” surrounding Volcker include consistent treatment of pooled vehicles and minimising compliance burdens for non-bank fund sponsors, sources said.

What changes could we see for the private equity industry?

Changes are likely to be slow and steady. Powell is seen as a continuity candidate following on from Janet Yellen who has largely taken a dovish approach to monetary policy.

What he does bring is inside knowledge of private equity and the financial industry, as well as a desire to lighten up on regulation: he played a key role in drafting new bank regulations after the 2008-09 global financial crisis and is tipped to offer more continuity for Wall Street than other candidates.

His appointment is also likely to bring a better sense of awareness at the Fed regarding how capital markets respond to policy change. Market sources said they don’t expect Powell to be their inside man, but they do expect he will draw upon his experience in the industry to look to address some of the frustrations private equity has had in the past with regulatory bodies.

What does the PE market think of him?

While the specifics of what Powell would bring to the industry are unclear, having an insider with practical knowledge of the day-to-day workings of private equity is a welcome development. With this should come greater communication between the Fed and the private equity industry.

“With an industry practitioner in place, there may be less secrecy and suspense around activity and more of an open line of communication to help prepare markets,” one Washington DC-based source said.

Powell will be the first Fed chair in four decades not to have an economics degree, but he does understand the intricacies of Capitol Hill politics, having served as undersecretary of the treasury for finance for President George HW Bush.

And if former President Barrack Obama’s blessing is anything to go by, he should fare well. When Powell and Harvard University economics professor Jeremy Stein were nominated to the Fed’s governor board in 2012, Obama stated: “their distinguished backgrounds and experience coupled with their impressive economic and monetary policy make them tremendously qualified”.