USA – CALIFORNIA Trends and Developments Contributed by: Vijay Sekhon, Mehdi Khodadad, Nicolai Schwarz-Gondek and Payom Pirahesh, Sidley Austin LLP
Regulatory Environment Securities and Exchange Commission (SEC) oversight and enforcement The SEC has maintained its scrutiny of PE sponsors, but rollbacks to SEC regulations are expected under the current administration. The previous administra - tion heightened SEC oversight and regulations to enhance transparency, fairness and investor protec - tion. Recent SEC enforcement actions against PE sponsors have focused on fee disclosures, conflicts of interest and valuation practices. For example, last year the SEC settled charges against a PE spon - sor for making misleading communications about fund performance. In the same matter, the SEC also charged the same PE sponsor for failing to maintain and enforce adequate policies to prevent misuse of material non-public information. The SEC’s Division of Examinations had prioritised examinations of PE sponsors, particularly regarding compliance with the Investment Advisers Act, but the current administra - tion has indicated intention to scale back SEC regu - lations, including cryptocurrency. PE sponsors must navigate this evolving SEC regulatory landscape to ensure compliance, and maximise reputation and The regulatory environment for PE is being shaped by antitrust scrutiny. The current administration’s antitrust agencies are not expected to be as aggressive as the previous administration in scrutinising PE sponsors and blocking business combinations, but President Trump has indicated he intends to target large tech - nology companies. The current administration is also continuing the prior administration’s pending lawsuit in the US District Court for the Southern District of New York against KKR & Co Inc (KKR), alleging KKR violated initial disclosure requirements in antitrust fil - ings under the HSR Act, with the DOJ seeking over USD650 million in civil penalties. Antitrust scrutiny will continue to be relevant for PE sponsors using roll-up strategies to consolidate smaller companies. Federal, state and foreign antitrust agencies are increasingly concerned that roll-ups may create monopolies or harm consumers. investor returns. Antitrust scrutiny There is also a trend for states to implement their own merger filing requirements (eg, New York, Colorado,
boom, with smaller, more conservatively valued deals and PE sponsors prioritising profitability over growth. Inflation Over the past three years, PE sponsors have faced significant challenges as persistent inflation led to higher interest rates for a longer period. The surge in global interest rates, especially in the US, ended a long period of cheap borrowing, making it harder for PE sponsors to finance deals. Inflation further increased costs and created uncertainty about company earn - ings, particularly for those acquired at high prices after the COVID-19 pandemic. This environment has made it difficult for investors to assess value and execute deals, as lenders have become more cautious and deal making slowed. PE sponsors continue to seek clarity as they navigate ongoing uncertainty around inflation and interest rates, which continue to send mixed signals. Volatility Volatility remains a defining feature of the current PE environment. While tariffs, inflation, interest rate poli - cy and geopolitical events each contribute to market uncertainty, it is the cumulative volatility arising from these factors that presents a major barrier to PE spon - sors in deal execution. PE sponsors and corporate sellers alike report greater hesitancy in launching or pursuing transactions due to concerns about valua - tion stability, regulatory predictability and buyer con - fidence. This ambient volatility disrupts not only pric - ing but also timing and execution, creating a drag on otherwise actionable deals for PE sponsors. Shifts in fundraising environment The PE fundraising market has seen its most muted first half since the COVID-19 pandemic, with USD387 billion raised in H1 2025, representing a decline of more than 17% compared with the same period a year earlier and leaving the industry on track for one of its weakest annual totals in recent years. This highlights the challenges general partners face in attracting investments. The decline was not uniform. Larger PE funds continued to attract most capital, while mid- sized PE funds struggled to secure commitments. LPs preferred established managers with diversified strategies and strong performance.
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