The Jumpstart Our Business Startups (JOBS) Act of 2011, originally proposed by President Obama and passed by Congress on April 5, 2011, changed regulations related to advertising, marketing, and investor relations for, among others, private equity managers. The general thinking is that by reducing the red-tape associated with investments and business capital, employment growth will be spurred among entrepreneurs and investment management firms.
By how much? Well, not surprisingly, it depends on such things as economic growth and investor profit expectations. With the “it depends” caveat a given, how much should statisticians really expect private equity employment to grow by in the coming years because of the JOBS Act?
One measure of the effect of the JOBS Act is private equity advertising efforts. If advertising shifts upwards, as is expected from the industry, above trend positive cash inflow to private equity funds will likely occur.
Are there any overall industry statistics on private equity advertising efforts? No, although anecdotally there appears to be some increase when looking at advertising industry employment and other industry indicators, such as advertising industry employment in New York, where financial industry activity is highly concentrated. How much is due to private equity business is unknown, although in doing some simple regressions, the number comes out to maybe 250 new advertising employees (the 250 is in no way a verifiable figure with survey evidence or the like).
A second measure to quantify the JOBS Act is above trend cash inflow to private equity firms. As with advertising employment effects, this measure has a good deal of statistical uncertainty associated with it because, unlike bonds or stocks, private equity cash inflow and outflow is not entirely at investors’ discretion and the industry is exempt from unneeded reporting requirements. With this caveat given, in looking at some data on the industry and doing some back of the envelope calculations, industry employment perhaps increased by around 200 individuals (at most) due to the elimination of unneeded red tape.
A third potential measure of the JOBS Act effect is whether above-expected-trend employment growth materialized among private equity sales professionals. Again, as with the other two potential measures, this figure only shows up in total industry employment. In doing some analysis of what data we have, private equity employment sales professionals may have seen increase of up to 1K. Although, there’s a good chance the regulatory reform hasn’t increased employment in this area yet (as industry insiders are well aware, the SEC was slow to get moving on getting rid of the administrative rules components).
Overall, private equity employment is likely to see an increase as a result of the JOBS Act of 2011 because of increased demand for higher yielding products. In doing some back of the envelope and simple statistical regression analyses, the private equity industry may have experienced an increase in employment of up to 1,450 individuals because of passage of the JOBS Act. Not a lot – statistical noise really – but every little bit of private industry employment, and the associated multiplier effects, matter now more than ever.
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