USA – CALIFORNIA Trends and Developments Contributed by: Vijay Sekhon, Mehdi Khodadad, Nicolai Schwarz-Gondek and Payom Pirahesh, Sidley Austin LLP
arrangements to secure appealing investments and boost returns. Regulatory-driven changes to fund terms The fee disclosure rule, recently shut down, was a regulatory proposal requiring PE sponsors to provide detailed, standardised disclosures about fees and expenses to investors. It aimed to address concerns about opaque fee structures and conflicts of interest in private funds. The rule was shut down after industry pushback, with arguments it was overly burdensome, costly and could stifle innovation. Its shutdown, like the pause of the CTA, reflects a regulatory environ - ment where new compliance requirements are being reconsidered or rolled back due to industry concerns. For PE sponsors, this reduces immediate compliance and reporting obligations. Emerging Issues Digital transformation and cybersecurity The digital transformation of PE operations is acceler - ating, with PE sponsors using technology to improve deal sourcing, due diligence and portfolio manage - ment. As PE sponsors grow, efficient and scalable solutions become essential, but this shift increases cybersecurity risks. PE sponsors are attractive targets for cyber-attacks due to their sensitive financial data, public investment activities, and often insufficient cybersecurity, making breaches highly damaging to finances and reputation. Legal considerations include data protection, incident response, and compliance with evolving global and US state cybersecurity reg - ulations. PE sponsors must implement and update strong cybersecurity measures to protect information and maintain investor confidence. Increased technol - ogy use also requires best practices in data govern - ance and cybersecurity hygiene. Regular cybersecu - rity assessments, vulnerability testing and employee training help mitigate risks and ensure regulatory com - pliance. Strong information protection and transpar - ent security practices build trust with partners and stakeholders, making cybersecurity both a safeguard and a growth driver for PE sponsors. Artificial intelligence (AI) AI is increasingly integrated into PE operations, offer - ing new opportunities for efficiency and value-crea - tion. AI enhances deal sourcing by analysing data to
identify potential investment targets and trends. Addi - tionally, AI-powered analytics improve due diligence by providing deeper insights into a target company’s financial health, operations and market positioning. Moreover, AI helps PE sponsors optimise internal pro - cesses to boost transparency by supporting commu - nication, customer relationship management and fund data analytics. AI improves efficiency, boosts profita - bility, identifies new revenue sources and reduces risk. AI raises legal considerations, including data privacy, algorithmic bias and compliance with evolving regula - tions. PE sponsors must navigate these challenges to harness AI while ensuring legal compliance. DEI rollback Diversity, equity and inclusion (DEI) have become criti - cal for PE sponsors, with rising pressure from inves - tors, regulators and stakeholders to improve DEI practices within sponsors and portfolio companies. In 2025, PE sponsors have begun quietly rolling back DEI commitments due to shifting political climates, including the current administration targeting DEI poli - cies, economic headwinds, and increased scrutiny over the effectiveness, constitutionality and costs of such programmes. Some PE sponsors claim their core principles remain unchanged after scaling back DEI, while others say they will “adapt” as anti-discrimina - tion laws are enforced by the current administration. As PE sponsors recalibrate priorities, the rollback of DEI is set to reshape the industry’s approach to talent management, deal sourcing and value creation, rais - ing questions about the future of inclusive leadership for PE sponsors. Presidential election and wars Political and geopolitical developments remain pivotal in shaping the PE landscape. With President Trump in office, PE sponsors are evaluating the impact of anticipated shifts in US policies, regulatory priori - ties and international relations. The administration’s tax policy, trade agreements and foreign investment regulations are expected to affect deal structuring, cross-border transactions and portfolio company operations. Ongoing wars in Israel and Ukraine con - tinue to inject volatility into global markets, while the recent US–Iran–Israel escalation has further intensi - fied uncertainty in the Middle East, and rising tensions between India and Pakistan have increased concerns
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