148 THE US-ISRAEL | Legal Review 2025/26 There has also been increased regulatory scrutiny of GPs that utilize secondaries and NAV loans. The SEC has released guidance with a particular focus on fund managers’ conflicts of interest. SEC examiners will scrutinize fairness in valuation policies, procedures, and practices, as well as the adequacy of disclosures and the procurement of proper consents from all LPs and other applicable parties. This heightened oversight would require obtaining fairness and valuation opinions from independent providers and prohibit any preferential treatment or side letters benefiting any single investor. This means that PE funds must communicate clearly to their LPs that there is a distinction between holding a company to improve value and holding a company because the exit market is unfavorable. The former can be justified on economic grounds. The latter risks compounding both return and reputational damage, while also increasingly drawing legal and regulatory scrutiny around GP disclosure obligations and fiduciary standards. Part II – The Industries that Define the Current Market Against this challenging macro backdrop, private equity’s most forward-looking funds are placing strategic bets on industries positioned to counter these headwinds. Nowhere is this more visible than at the intersection of PE with aerospace and defense, retail, healthcare, renewables and energy, and technology. Each of these industries demands deep institutional knowledge and trusted advisors who understand the complex and evolving regulatory frameworks that affect them. To succeed, PE funds must bring a coherent and forward-looking operational strategy. Aerospace and Defense Aerospace and defense has emerged as one of the most compelling and structurally supported sectors for private equity investment in the current cycle — and one of the most legally intricate. Driven by a fundamental shift in the global security environment, defense budgets across NATO member states, the Indo-Pacific region, and the Gulf have expanded at a pace not seen since the Cold War era. The Russia-Ukraine conflict and ongoing Middle East tensions, including the Iran-Israel conflict, have translated into sustained, multi-year government spending commitments that have made the aerospace and defense sector more attractive to PE investors than many other sectors. The ongoing modernization of defense platforms and the push by governments to onshore and secure critical defense supply chains are generating significant demand for the kind of capital-intensive transformation that PE is well positioned to fund. The sector also benefits from high barriers to entry. Established defense contractors and their supply chain partners operate under security clearances, long-term approved supplier relationships, and highly specialized technical certifications that are extraordinarily difficult for new entrants to replicate. PE funds already established in the space have a distinct advantage. At the same time, aerospace and defense is among the most legally and regulatorily complex sectors in which private equity can operate. US defense businesses and their international counterparts frequently involve technologies, products, and services subject to export control regimes — most notably the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR) in the United States, and equivalent frameworks in the UK, EU, and internationally. PEbacked defense businesses are subject to a complex web of government contracting regulations, including cost accounting standards, truthful cost or pricing “PE funds that are performing well have done so not by waiting out these pressures, but by adapting to them — deploying capital more selectively and with greater discipline than in prior cycles.”
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