Could the Trump administration be good for private equity investors? Blackstone Inc. executive John Finley ’81 hopes so.
Before a full classroom on Feb. 11, the top attorney for the world’s largest private equity firm shared his insights on emerging financial trends, with more than 150 Harvard Law School students. Hosted by the Harvard Association for Law & Business, the event, “Navigating Private Equity,” gave attendees a rare opportunity to hear from Finley, who is Blackstone’s chief legal officer, about his current role and the future of asset management.
Private equity investment companies, or asset management firms, are financial partnerships in the business of buying and selling companies and other valuable assets to return a profit. During Finley’s conversation with Harvard Law Professor John Coates, who moderated the event, Finley spoke candidly about the evolving private equity investment marketplace amid a flurry of significant shifts in federal policy.
According to Finley, private equity investment firms have historically faced governmental scrutiny in the form of compliance standards and regulations overseen by the U.S. Securities Exchange Commission (SEC). Under the Biden administration, the SEC sought to increase both the number and the rigor of regulations on private equity investment firms.
Private equity has gone through periods of political disfavor. For example, the Federal Trade Commission and the Department of Justice under the Biden administration expressed concerns regarding private equity, and as a result firms weren’t seen as good buyers for divestitures, according to Finley. “There was a lot of hostility, just generally, towards private equity. Based on what we observed during the first Trump administration, though, I expect that to change,” he said.
Blackstone and other industry leaders hope the new regulatory regime will provide pathways for expanding access to a broader customer base. Under existing standards, firms are generally forced to limit their list of potential investors to individual investors with investable assets of over $5 million. Finley hopes that, under new leadership, the SEC might ease requirements to give “retail” customers a greater ability to invest as well.
“We see opportunities going forward for the SEC under the new administration to be more flexible with our products,” said Finley. Specifically, he said, there may be opportunities to offer financial products to retail investors who do not meet existing financial thresholds.
Asked for specifics about the scope of retail investing that he and others envision, Finley conceded that blanket approval would be highly unlikely. He did, however, elaborate on the forms of retail investment opportunities that asset managers believe might be within the realm of possibility.
“One really good example would be a 401K that is a defined contribution plan. Right now, in those accounts, it’s extremely difficult to access alternatives or private equity,” Finley said. “Pension plans often put money in alternatives like private equity. But if you’re in a defined contribution plan and you decide that’s how you want to invest your money, private equity suddenly isn’t an option.”
Finley also highlighted legal obstacles to retail investing within the Investment Company Act of 1940 that he believes policy changes could easily address. According to Finley, the law uses an outdated definition of “affiliate transaction” that discourages asset management companies from offering certain investment products for retail. In practice, this means firms that want to create investment products for retail customers must hire costly intermediaries to offer access to their investment products.
When asked whether Blackstone would be more likely to seek a blanket regulatory change or a situation-specific exemptive order, Finley said the exemptive order would be the best fit. Achieving stakeholder consensus on SEC rule proposals can be extremely difficult due to the intricate differences between financial products.
“I think the SEC would be very hesitant to put in a rule that gives you just total flexibility, but a new administration may be more flexible to looking on a case-by-case product basis,” he said.
Although Finley cited reasons the world of finance should be optimistic about its future under the second Trump administration, he also noted the possibility that Congress may consider changes to a longstanding tax policy definition with respect to carried interest (although no proposal has been surfaced to date). As it stands, “carried interest allocations” to general partners of investment funds have been taxed as capital gains. However, the new administration has floated the idea of changing that tax treatment which could subject them to the ordinary income tax rates, which would result in a tax increase of more than 15 percent.
Finley concluded by discussing his career and by fielding student questions on topics ranging from the impact of tariffs to internal legal department structure. He also provided guidance to students interested in entering corporate finance law on how to navigate the transition from being an attorney at a law firm that serves financial clients to being in-house counsel at a financial company like Blackstone. His advice? Try not to rush.
“Being absolutely the most talented, the most experienced, the most knowledgeable will always maximize your chances for a successful transition from a law firm to in-house counsel,” said Finley. “So, do not be afraid of staying at a law firm on the longer side to enhance that experience and ability because it’s all about reps.”
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