Capstone’s US Financial Services 2023 Preview: Regulators Poised for Landmark Year With Changes Impacting Banks, Capital Markets, Fintechs, Card Networks
Capstone expects 2023 will be a landmark year for US financial services regulation, as the Biden administration looks to cement scores of high-profile regulatory initiatives before the uncertainties of the 2024 election. In this US 2023 Financial Services Preview, we offer 10 predictions on looming, underappreciated policy changes that will impact the sector.
The Fed will increase capital requirements for large banks. In early 2023, we expect the Federal Reserve (Fed) to propose raising capital requirements for large US banks. We believe the risk of large increases is underappreciated and see downside for equities.
The SEC will finalize its market structure rulemakings. As early as 2H 2023, we expect the Securities and Exchange Commission (SEC) will finalize its recently proposed market structure rules, posing risks to wholesalers and retail broker-dealers.
Policymakers will ratchet up their scrutiny of fintech. The tighter focus from regulators may lead the Consumer Financial Protection Bureau (CFPB) to designate the buy now, pay later (BNPL) industry for supervision, and policymakers will increasingly scrutinize bank partnerships.
Pressures on “junk fees” will increase. In 2023, we expect the CFPB to propose a rule reducing the credit card late fee safe harbor, posing headwinds to subprime and private-label card issuers. This would follow the recent Federal Trade Commission (FTC) announcement of a similar effort on what it calls “junk fees” which will likely lead the commission to propose a rule in 2023.
Congress will jumpstart retirement savings. Congress looks poised to pass a package of bills called “the SECURE Act 2.0,” which will jumpstart retirement accounts and savings in the coming years.
Regulators will ramp up scrutiny of auto dealers. We expect the FTC to proceed with enforcement actions against auto dealers for misleading sales practices, while it moves toward finalizing its recently proposed Motor Vehicle Dealers Trade Regulation Rule in 2024.
The CFPB will ramp up its scrutiny of the credit reporting industry. We expect credit reporting to rise to the forefront of CFPB scrutiny in 2023, which could lead to proposed rulemaking and enforcement activity.
The card networks (Visa and Mastercard) will remain in the crosshairs. The Fed’s recently finalized changes to its rules implementing the Durbin Amendment will become effective in 2023, creating a revenue drag for Visa Inc. (V) and Mastercard Inc. (MA), while the card issuers continue to fight proposed legislation that would go even further in promoting competition.
Real estate brokerages will face continued risk from antitrust investigations. Realtors will be on the defensive as the US Department of Justice (DOJ) and a pair of class action lawsuits delve into allegedly anticompetitive behavior in the residential real estate industry.
Insurance regulators will roll out reforms aimed at addressing PE investment. In 2023, we expect working groups at the National Association of Insurance Commissioners (NAIC) to release policy recommendations aimed at addressing the growth of private equity (PE) investment in insurance carriers.
The Fed Will Increase Capital Requirements for Large Banks
In early 2023, we expect the Fed will propose increasing capital requirements for large US banks. We believe the market does not fully appreciate the risk of large increases and see downside for equities.
In July 2022, Michael Barr was confirmed as Vice Chair for Supervision at the Fed, becoming, in effect, the regulatory czar for large banks. Early in his tenure, consensus in the industry was that Barr would modestly raise bank capital requirements. Indeed, several times since his confirmation, Barr has signaled that the Fed is engaged in a holistic review of bank capital requirements.
We believe investors underappreciate the magnitude of the possible changes. In a December speech (and subsequent Q&A), Barr suggested potential changes to the regulatory framework include:
We believe investors underappreciate the magnitude of possible changes.
Implementation of the Basel III “endgame” reforms in the US;
Changes to stress testing (including the possibility of multiple scenarios); and
Reconsideration of the countercyclical capital buffer.
Barr also argued that capital requirements in the US are currently “toward the low end of the range” envisioned in most academic research, and overlayed his comments endorsing the philosophy that robust capital is needed due to inherent economic uncertainties, best exemplified by the 2020 pandemic. While details remain to be seen – and Barr said he’ll have more to say in early 2023 – we believe the combination of these changes (in part offset by tweaks to the supplementary leverage ratio) could have an unexpected impact on required capital for large US banks.
The SEC Will Finalize its Market Structure Rulemakings
As early as 2H 2023, we expect the SEC to finalize its recently proposed market structure rules, posing risks to wholesalers and retail broker-dealers.
On December 14th the SEC proposed a series of four rulemakings that together would rewrite the rules underlying US equity market structure. The four proposals cover:
Disclosure around order execution;
Minimum pricing increments, exchange access fees, and odd lot order transparency;
Order-by-order competition; and
Best execution requirements.
We at Capstone are still digesting the proposals, but we believe proposals #3 and #4 are highly impactful, and likely to damage market makers and broker-dealers that receive payment for order flow (PFOF). We expect the rules to be finalized as early as 2H 2023 (potentially slipping into 2024). When this happens the rule’s opponents, including Virtu, which has already signaled a willingness to litigate, will consider legal challenges.
Policymaking Will Enhance Their Scrutiny of Fintech
Among other developments, the Consumer Financial Protection Bureau (CFPB) may designate the buy now, pay later (BNPL) industry for supervision, and policymakers will increasingly scrutinize bank partnerships.
Capstone believes the report and the critical remarks from Director Rohit Chopra that accompanied it indicate the risk of near-term enforcement action…
The CFPB in September issued a long-awaited report following an inquiry into the business practices of five of the largest BNPL companies – Affirm, Block, PayPal, Zip and Klarna. The bureau in its report alleges that use of the industry’s flagship “pay-in-4” product may increase the risk for consumers of financial overextension. The report also claims that several common industry practices related to disclosures, dispute resolution, autopay requirements, late fees, and payment representations may harm consumers. Capstone believes the report and the critical remarks from Director Rohit Chopra that accompanied it indicate the risk of near-term enforcement action against the industry has risen. Additionally, Capstone believes that the bureau will try to bring BNPL under its supervisory authority in 2023, either through a “larger participant” rulemaking or by using its dormant authority to examine non-bank entities that pose a risk to consumers.
Acting Comptroller of the Currency Michael Hsu expressed concern that the rise of fintech-bank partnerships, if left unchecked, could create systemic risk leading to a financial crisis. In October, the OCC announced it will open an Office of Financial Technology in 2023 to improve the agency’s ability to oversee relationships between fintechs and banks. A recent report from the Department of Treasury expressed concern that fintechs operate outside the banking regulatory perimeter and recommended developing a consistent supervisory framework for fintech-bank partnerships. This would include the finalization of third-party risk management guidelines initially published in 2021. The Select Subcommittee on the Coronavirus Crisis further amplified concerns among regulators about fintech compliance regimes in a recent release. The committee found that fintechs that facilitated loans through the Paycheck Protection Program lacked institutional controls that were present at traditional financial institutions and were also more likely than traditional banks to approve fraudulent loans. We expect that the OCC and other federal regulators to monitor fintech-bank partnerships more closely in 2023, which may limit growth opportunities for certain fintechs and common bank partners and increasing the risk of enforcement.
Pressures on “Junk Fees” Will Increase
In 2023, we expect the CFPB to propose a rule reducing the credit card late fee safe harbor, posing headwinds to subprime and private-label card issuers. This follows the FTC’s recent announcement of a similar effort on what it calls “junk fees” and the likely proposal of a rule in 2023.
In 2023, we expect the CFPB and FTC to increase their scrutiny of what they have called “junk fees.” These are fees which regulators argue are misleading or which do not correspond to an action that provided value to consumers. The “junk fee” emphasis has attracted substantial pushback from the consumer finance industry, which has argued that most consumer finance products are already subject to a robust regulatory regime, which is in part predicated on disclosure. Nonetheless, we expect several important developments in 2023:
We expect the CFPB to propose a rule reducing the credit card late fee safe harbor, posing headwinds to subprime and private-label card issuers.
The CFPB will likely propose reducing the credit card late fee safe harbor. In June 2022, the CFPB published an advanced notice of proposed rulemaking (ANPRM) on credit card late fees, setting the stage for a potential rulemaking. We believe the CFPB is likely to propose a rule reducing the safe harbor (currently set at $30 for first violations and $41 for subsequent violations) in the first half of 2023.
The FTC will likely propose a rule on “junk fees.” In October 2022, the FTC published an ANPRM on “junk fees,” setting the stage for a proposed rule as early as 2023. Whereas the CFPB only has jurisdiction over consumer financial products or services, the FTC’s jurisdiction covers most of the economy, highlighting potential risks for businesses across the economy.
Congress Will Jumpstart Retirement Savings
Congress looks poised to pass a package of bills called “the SECURE Act 2.0,” which will jumpstart retirement accounts and savings in the coming years.
We expect SECURE 2.0, which was attached to the year-end spending bill, will pass in late 2022. We believe the provisions in the bill will boost participation in retirement plans, particularly for small and medium-sized businesses (SMBs) through a variety of provisions that build on the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act. In particular, the bill includes a provision that requires 401(k) and 403(b) plans to automatically enroll employees (while requiring them to opt-out if they wish not to participate) at a contribution rate between 3% and 10%. Research has shown automatic enrollment boosts employee participation rates given higher employee take-up rates compared to a voluntary (opt-in) model. SECURE 2.0 also seeks to expand plan access by increasing the small business plan startup credit from 50% to 100% for companies with fewer than 50 employees, a category which currently disproportionately lacks retirement plan access. The expanded tax credit is set to go into effect on December 31, 2022, which we expect to drive an increase in plan offerings through 2023.
We believe the bill will provide tailwinds for retirement plan providers through a host of additional provisions, such as enabling small businesses without plans to offer starter 401(k) plans to employees, allowing employers to match student loan payments, and increasing the required mandatory distribution age. Combined, the provisions are designed to allow more employees access to plans, increase savings, and leave assets in retirement accounts longer over their lifetime which should drive greater retirement savings accumulation in 2023 and beyond.
Regulators Will Ramp Up Scrutiny of Auto Dealers
We expect the FTC to proceed with enforcement actions against auto dealers for misleading sales practices, while it moves toward finalizing its recently proposed Motor Vehicle Dealers Trade Regulation Rule in 2024.
The FTC has been highly critical of auto dealer practices, especially the aggressive marketing of add-on products such as vehicle service contracts, guaranteed asset protection (GAP) waivers, anti-theft protection, and more. The FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule would seek to prohibit the sale add-ons that provide no value to the consumer and force dealers to publish standardized pricing. While the commission continues to develop the rule through 2023, we expect it to take aggressive enforcement on sales and marketing practices related to add-ons, as well as monitoring complaints related to pricing for any disparate impact.
Add-on products are a major profit generator for auto dealers. According to the National Automobile Dealers Association (NADA), add-ons generate around 25% of dealer gross profit, despite accounting for just over 3% of vehicle revenue. AutoNation disclosed that add-ons accounted for 28% of the company’s gross profit in 2021, down from nearly 30% in 2020 and other publicly listed dealers reported similar reliance. We anticipate that a crackdown on ancillary product sales would inhibit pricing and lower attach rates which could reduce add-on revenue by up to 40% in a worst-case scenario, reducing dealer gross profit by roughly 10%.
The CFPB Will Ramp Up Its Scrutiny of the Credit Reporting Industry
We expect credit reporting to rise to the forefront of CFPB scrutiny in 2023, which could translate into both proposed rulemaking and enforcement activity.
During his tenure at the CFPB, Director Chopra has been a steadfast critic of the credit reporting industry and focused on ensuring that consumer information is reported accurately, and when necessary, disputes are handled promptly and fairly. In November, the bureau issued a circular affirming the responsibilities of credit reporting companies and data furnishers to investigate consumer disputes, which the CFPB identified in its latest supervisory highlights report as a shortcoming for both groups.
Meanwhile, in April, the CFPB sued TransUnion for violating a 2017 law enforcement order requiring the company to stop engaging in deceptive marketing behavior. The CFPB alleges that TransUnion continued to deploy digital dark patterns to trick consumers into unknowingly signing up for subscriptions or purchasing products or services. Equifax has also disclosed that it received a civil investigative demand (CID) from the CFPB regarding how it responds to consumer disputes for inaccurate information. As credit reporting remains the primary source of consumer complaints to the CFPB, we expect the bureau to continue scrutinizing the actions of the credit reporting agencies, which will force more thorough and manual reviews of consumer disputes, driving an increase in compliance costs for the companies.
The Card Networks Will Remain in the Crosshairs
The Fed’s recently finalized changes to its rules implementing the Durbin Amendment will become effective in 2023, creating a revenue drag for Visa Inc. (V) and Mastercard Inc. (MA), while the card issuers continue to fight proposed legislation that would go even further in promoting competition.
The Fed’s changes to Regulation II go into effect in July 2023 and clarify merchants’ ability to route debit transactions over a second, unaffiliated network for card-not-present transactions. Visa and Mastercard have been dominant in the growing card-not-present market, routing 94% of the transactions in 2019, the last year for which data is available. We expect the rule change will result in that market share declining to around 65% as it moves closer to the card-present market where merchants currently have competitive routing choices.
Additionally, we believe ongoing investigations into the companies’ debit practices – both companies have disclosed an FTC inquiry and Visa is also being investigated by the Department of Justice – will weigh on them. We believe regulators could advance their cases in 2023, at least by demanding further information from the companies and the regulatory scrutiny will limit how aggressively the companies can respond to increased competitive pressures in the card-not-present debit routing market and from new payment models.
We continue to believe the Credit Card Competition Act (S. 4674), a bill introduced in July 2022, is unlikely to pass. The bill seeks to increase competition among US credit card networks by allowing merchants to route payments through unaffiliated networks – similar to provisions already in place for the debit card market.
Real Estate Brokerages Will Face Continued Risk from Antitrust Investigations
Realtors are currently on the defensive as the U.S. Department of Justice (DOJ) and a pair of class action lawsuits are exploring anticompetitive behavior in the residential real estate industry.
We expect the US Department of Justice (DOJ) will continue its investigation—launched in July 2021—into the real estate brokerage practices of the National Association of Realtors (NAR) and real estate brokerage firms that are potentially anticompetitive. To-date, the investigation has been held up by a petition filed by NAR in the US District for the District of Columbia. We will be watching in 2023 for any indication of when the District Court could rule on the petition – a prerequisite for allowing the investigation to formally proceed.
We believe an outcome from either the DOJ’s investigation or the pending lawsuits would ultimately put pressure on brokerages to reduce commission rates…
Meanwhile, NAR and real estate brokerage firms continue to battle with home sellers in two major lawsuits—Sitzer v. National Association of Realtors, et al in the US District Court for the Western District of Missouri and Moehrl v. National Association of Realtors, et al for the US District Court in Northern Illinois. In both cases, home sellers allege brokers violated US antitrust law by enforcing NAR’s buyer broker commission rule. The rule requires all member brokers to make a blanket, non-negotiable offer of buyer broker compensation when listing properties on multiple listing services (MLS). Plaintiffs allege enforcement of the rule has kept broker commission rates artificially inflated. In 2022, plaintiffs in Sitzer were granted class certification—a blow to defendants that potentially puts brokers on the hook for the $1.3B buyer broker commissions plaintiffs argue were paid in excess of what plaintiffs allege were appropriate in the last eight years. The motion for class certification in Moehrl remains pending. Both cases are slated to head to trial in late 2023 (Sitzer) and early 2024 (Moehrl).
We believe an outcome from either the DOJ’s investigation or the pending lawsuits would ultimately put pressure on brokerages to reduce commission rates, impacting brokerage firms and real estate technology players that now rely on the stability of the commissions. If broker commissions declined from the current industry average of 4.9% to the international average of 3.4%, the industry would lose roughly 30% of annual commissions revenue, which would be roughly $32 billion in 2021.
Insurance Regulators Will Roll Out Reforms Aimed at Addressing PE Investment
In 2023, we expect working groups at the National Association of Insurance Commissioners (NAIC) to issue policy recommendations aimed at addressing the growth of PE investment in insurance carriers.
Capstone believes private equity investment in the insurance market is likely to face headwinds in 2023 as the NAIC continues its internal review of risks such investments pose to policyholders. On December 7, 2021, the NAIC voted to expose a list of “regulatory considerations applicable (but not exclusive) to [PE] owned insurers” for a 30-day comment period. The report identifies 13 topics of consideration and concern related to PE ownership of insurance companies. The list of considerations covers a wide range of topics, including investment management agreement structure, private equity owner investment horizon and affiliated investments, increased investments in less-liquid structured securities, use of offshore reinsurers, and pension risk transfers. To-date, the NAIC has assigned various internal working groups and task forces to investigate each area of concern and determine whether further action—in the form of industry guidance or model law—is warranted.
We believe the NAIC is keenly focused on:
The tendency of PE-owned insurers to take on more risk in insurer portfolios and
an apparent lack of transparency in investment management agreements (IMAs) between PE owners and insurers.
During the NAIC’s recent Fall National Meeting, commissioners agreed there should be a focus on:
Reevaluating disclosure requirements, particularly for parties that may have less than 10% ownership but retain less clear levers of control,
educating examiners on complex control structures, and
facilitating better communication across state insurance departments to understand mechanisms of control being used today.
We expect the NAIC’s intended responses to these and other issues raised in its list of considerations to become more clear throughout 2023.
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Company with Human Capital in Lebanon
Predicting the policy landscape for a business with a significant staffing presence in Beirut, Lebanon, including a focus on the trajectory of the Israel-Hezbollah conflict in 2024 and the likely reconstruction outlook.
Quantifying the impactof multiple different conflict scenarios and their impact on company operations, with a view toward getting the Investment Committee informed of the range of possible outcomes and the irrelative risks to a contemplated investment.
Creating a strategyfor our private equity client to prepare to acquire company with significant conflict exposure, including strategies for reducing business interruption and ensuring the welfare of the company’s employees.
Predicting the policy landscape impacting a US business with operations and staff in Ukraine and Belarus, including specific sanctions exposure and other business interruption risk.
Quantifying the impactof current and future banking sanctions, export controls, and reputational risk on business operations and the overall attractiveness of the Company.
Creating a strategyto identify specific areas of risk and mitigating factors, including post-close recommendations for operating the business regarding personnel, technology infrastructure, and compliance.
Predicting the policy and sanctions landscape impacting US investments into a publicly traded bank in Kazakhstan.
Quantifying the impactof allegations that this bank was in violation of US sanctions,including building a well-informed view regarding the veracity of those allegations and the likelihood of potential action by the US Treasury Department against this bank as a result.
Creating a strategyfor our investor client on how to interpret US sanctions accurately and predict future US Treasury actions in order to determine potential risk exposure for its investment and what risk mitigation measures it should take.
Quantifying the impactof allegations that this bank was in violation of US sanctions,including building a well-informed view regarding the veracity of those allegations and the likelihood of potential action by the US Treasury Department against this bank as a result.
Creating a strategyfor our investor client on how to interpret US sanctions accurately and predict future US Treasury actions in order to determine potential risk exposure for its investment and what risk mitigation measures it should take.
Predicting the policy for energy storage and climate resiliency policies in DoD, from policy to procurement, with a specific focus on large-scale batteries..
Quantifying the impactof key DoD policies and procurement trends affecting both installation energy and operational energy to identify business opportunities for this energy storage manufacturer.
Creating a strategyto capture DoD business both directly and indirectly, via relationship-building with private sector partners working with DoD in its Utility Privatization (UP) program. Additionally, reprioritized the client to focus on installation energy over operational energy given the relative size of the market in each sub-sector of DoD.
Predicting the policy and regulatory environment impacting a provider of natural disaster risk modeling for governments, utility and insurance markets.
Quantifying the impactof policy and regulatory drivers that are pushing industries to invest in natural disaster risk mitigation and preparedness.
Creating a strategyfor our private equity client to attract additional capital by building conviction around the company’sservices relative to the regulatory requirements and market factors that are shaping demand for the company’s products and services.
Quantifying the impactof policy and regulatory drivers that are pushing industries to invest in natural disaster risk mitigation and preparedness.
Creating a strategyfor our private equity client to attract additional capital by building conviction around the company’sservices relative to the regulatory requirements and market factors that are shaping demand for the company’s products and services.
Predicting the policy and regulatory environment around the commercialization of dual-use defense technology and assess federal and state-level demand for wildfire-fighting intelligence services.
Quantifying the impactof future spending on technology for fighting wildfires to inform the development of a new service offering paired with a new business model for the client.
Creating a strategyfor the company to design its product with an informed view ofcustomer needs and procurement requirements, as well as build a complementary strategic engagement strategy.
Predicting the policy landscape for specific Department of Defense contracts for a Jones Act-compliant shipping company.
Quantifying the impactof changes to how USTRANSCOM contracts with logistics companies for military relocations to determine risks to specific revenue streams for the company presented by a major overhaul of USTRANSCOM’s execution of military household goods relocation services.
Creating a strategyfor underwriting the contract risks to the business based on key known and unknowns in USTRANSCOM’s processes and our forward-looking views on how the risks are likely to materialize in years.
Predicting the policyand regulatory environment of impacting the utilization of drones for operations over people and moving vehicles, which necessitates interpretation of vague FAA regulations.
Quantifying the impactof complying with FAA regulations on the operations of a business with extensive drone operations in areas that may be in regulatory grey areas.
Creating a strategyfor our portfolio company client to build a robust set of policies and procedures to demonstrate compliance with FAA guidelines in a manner that would enable them to scale the business while minimizing regulatory risk.
Predicting the policy and regulatory outlook inthe US and EU for navigation, flight planning, and operational planning tools utilized by the commercial, military, and general aviation industry.
Quantifying the impactof the FAA’s regulatory agenda stemming from the 2024 FAA Reauthorization and modernization efforts for the National Airspace System to accommodate next generation aircraft such as eVTOLs and drones.
Creating a strategyfor our private equity client to invest in the business, from both a regulatory risk mitigation perspective as well as anticipating how the future of flight will create new opportunities for the business.
Predicting the policylandscape shaping the US market for rare earth magnets used in advance military weapons systems amid growing concern over rare earth supply chains.
Quantifying the impactof the Biden administration’s long-term policies to strengthen supply chain security, including those on for neodymium magnets, to help our client gain confidence with friendshoring-based supply and demand.
Creating a strategyto take advantage of these policy drivers in support of the second-largest private equity transaction in Japan’s history.
Predicting the policy environment for SaaS providers to the Department of Defense and across a range of other federal agencies as a result of the Department of Government Efficiency (DOGE) and broader procurement changes.
Quantifying the impactof DOGE-aligned contracting disruptions to the overall software market for the DoD and other agencies and identify the degree of exposure to this business in particular.
Creating a strategyidentifying major risks and opportunities for this business to navigate DOGE-era contracting volatility and to inform our private equity client’s investment strategy.
Predicting the policy and budgetary outlook for a major vendor of meals-ready-to-eat (MREs) and other food products to the Defense Logistics Agency (DLA).
Quantifying the impactof current and forecasted demand for the company’s products to the DLA and, to a lesser extent, FEMA, on the outlook for the business as well as any potential changes in the competitive landscape for key vendors.
Creating a strategyfor our private equity client to understand the role that the company plays in DLA supply chains, DLA priorities such as industrial base concerns that drive contract awards and pricing dynamics, and other matters to inform their investment strategy.
Predicting the policy and budgetary outlook for evolution of DoD efforts to better identify talent gaps and upskill the defense cybersecurity workforce.
Quantifying the impactof new policy and senior stakeholder initiatives on the total addressable market for commercially-available cybersecurity certification programs within the DoD.
Creating a strategythat navigates fragmented decision-making authorities and customer buying habits across the defense ecosystem to promote the penetration of the client’s product and mitigate the risk associated with new regulations.
Predicting the policy environment driving the adoption of commercial earth observation satellites across several key US sectors (e.g. agriculture, critical infrastructure, insurance). The goal was to identify commercial applications for satellite technology originally designed for defense applications.
Quantifying the impactof the commercial, policy, and regulatory drivers creating specific market needs for enhanced earth observation capabilities.
Creating a strategyto further develop three specific business concepts, including one that received IRAD resources and is being advanced rapidly within the organization.
Predicting the policy and competitive environmentregarding defense modernization and procurement priorities in a country allied with the US, particularly regarding demand for combat vehicles.
Quantifying the impactof international competitors entering an established export market with strong support from their domestic governments.
Creating a strategy assessing competitive risk, outlining influence levers within the US government that relate to foreign military sales (FMS), and identifying champions in US government to advocate for American defense exports in the face of foreign defense industry competition.
Predicting the policy landscapefor an engineering firm that derives a significant proportion of its revenue from working with the Department of Defense, and particularly on MILCON projects.
Quantifying the impactof the DoD budgetary outlook, including for MILCON and O&M spending on infrastructure, and other key issues to assess the project pipeline health of the business.
Creating a strategyfor our private equity client to assess the overall health of the DoD end market for this business, both from the contracting and project pipeline perspective and a broader look at the US national security strategy and the role of infrastructure investment within it.
Predicting the competitive award processfor the US Air Force and Navy’s Next-Generation Fixed Wing Helmet (NGFWH), which is the largest disruption to the military helmet market in decades.
Quantifying the impactfor NGFWH ofthe USAF adding a second helmet manufacturer into its supplier base and calculate projected demand for a new entrant across multiple aircraft and services based on industrial base concerns.
Creating a strategyfor our private equity client to underwrite the likelihood that a competitive new entrant would be awarded a major contract by the USAF as a part of its investment strategy into this space.
Predicting the policy and budgetaryoutlook for US Naval shipbuilding programs, as the Navy is the ultimate end-customer for ships constructed at US shipyards utilizing the Company’s products and services.
Quantifying the impactof major US Navy shipbuilding budgetary plus-ups on shipyard infrastructure investment cycles for the Company’s business outlook.
Creating a strategyfor our private equity client to underwrite the policy and budgetary drivers that will shape their investment into a shipyard infrastructure company that is highly exposed to the growth of US naval shipbuilding.
Predicting the policy landscape for an enduring cybersecurity training requirements across the military services asthe DoD centralizes cybersecurity authorities.
Quantifying the impactof the DoD’s realignment of cyber authorities and organizations, which could reshape funding across the entire cyber enterprise.
Creating a strategyfor our private equity client to navigate the DoD’s fragmented cyber acquisition community and provided key insights to help an early-stage cyber company cross the “valley of death” onto funded programs of record.
Predicting the competitive award process for non-intrusive scanning equipment across the US Department of Homeland Security and DoD.
Quantifying the market conditionsfor new scanner and sensing technology in the border screening space and assessed the durability of contracts across the federal, state and local customer set.
Creating a strategyoverview of regulatoryand policy considerations of the securityscanner market, analyzing TSA procurementprocesses and federal screening equipmentrequirements, to assess market accessbarriers and growth opportunities for ourclient’s potential investment.
Predicting the policy and budgetary outlook for non-platform C4ISR systems by analyzing service-specific requirements,DoD-wide technology trends, and combatant command funding streams for distributed intelligence processing and multi-domain command and control capabilities.
Quantifying the impactof major initiatives across the Combatant Commands, which we identified as an underappreciated source of funding for non-platform ISR systems.
Creating a strategyfor our client that mapped out attractive customers ahead ofany formal requirements and allowed them to differentiate their intelligence capabilities within the crowded SIGINT market.
Overview: Capstone evaluated the policy environment surrounding the pharmacy supply chain, including impact analysis of pharmacy reform and Medicare Part D landscape. This included a unit economic evaluation of 15 drugs of the clients’ selection, history of PDUFA legislation, and impact analysis of the Inflation Reduction Act, PBM reform, and reform to Medicare’s six protected classes on the company.
Process: Capstone spoke with 40+ key stakeholders, including:
Executives at major payors and PBMs;
Top advocates at prominent industry associations; and
Key governmental stakeholders.
Capstone analyzed the target’s proprietary claims data to determine the acquisition and reimbursement costs, relevant to benchmarks like WAC, AWP, and NADAC.
Capstone analyzed the target’s reimbursement and market share compared to other key competitors using the 100% Part D Events file, allowing fine-tuned and accurate market comparative analysis.
Deliverable: Capstone provided an in-depth, 150-slide final deck, analyzing both the political outlook that would impact their economics and building drug-level trends in AWP, WAC, NADAC, reimbursement, and drug-level market share compared to pharmacy competitors.
Overview: Capstone evaluated the impacts of the Inflation Reduction Act, including implications of the carve-out of IVIG products from IRA negotiation, Medicare Part D redesign, and inflation rebates in Medicare Part D, Part B, and Medicaid. This also included an overview of drug-level trends (2018-2024) in AWP, WAC, ASP, and Medicare Part D reimbursement trends by payor using 100% Part D PDE/claims file.
Process: Capstone spoke with 60 key stakeholders, including:
Executives and decision-makers at major pharmaceutical manufacturers;
Top leaders at influential payors/PBMs; and
Seasoned experts at major providers.
Capstone analyzed the target’s reimbursement and market share compared to other key competitors using the 100% Part D Prescription Drug Events (PDE) file, allowing fine-tuned and accurate market comparative analysis.
Deliverable: Capstone provided an in-depth 100+ slide final deck, including analysis and impact of the unique relationship between IVIG and SCIG manufacturers and PBMs.
Overview: Capstone evaluated the national and international policy environment impacting generic drug markets in seven key European markets. This included an in-depth country-by-country analysis of drug pricing and reimbursement schemes, efforts to expand generic uptake, and outlook for regulations to drive or limit utilization of generic drugs.
Process: Capstone spoke with more than 40 key stakeholders, including:
Executives and other decision-makers at major manufacturers; Advocates and lobbyists for industry peers; and
Legal experts on pharmaceutical pricing and drug approval processes.
Deliverable: Capstone provided an in-depth 170+ slide final deck, including opportunities for both risk mitigation and service expansion driven by policy headwinds or tailwinds.
Overview: Capstone evaluated the national policy environment impacting pharmaceutical research and development policy and the clinical trial pipeline. This included an in-depth analysis of the NIH grant lifecycle, history of PDUFA legislation, and outlook for NIH funding disruptions to the pre-clinical timeline.
Process: Capstone spoke with 35 key stakeholders, including:
Experts from leading academic and commercial medical research institutions;
Executives and decision-makers at major pharmaceutical manufacturers;
Policymakers from key offices and agencies.
Deliverable: Capstone provided an in-depth 75+ slide final deck, including analysis and commentary of recent, relevant headlines and a scenario analysis of the possible impacts of the Trump administration’s proposed changes.
Overview: Capstone analyzed the outlook for passage of the Modernizing Opioid Treatment Access Act (MOTAA) and assessed the outlook for states to align themselves with new federal policy on the regulation of opioid treatment programs. Specifically, we analyzed the outlook for changes in operations by other operators in the OTP ecosystems, including pharmacies, OTP take-home prescription practices, and pharmaceutical manufacturers participating with the new channel.
Process: Capstone spoke with more than 3 dozen key stakeholders, including:
State opioid treatment authorities, providers, and payors, including chief medical officers and members of state medical boards;
State lawmakers, federal affairs officials, and state Medicaid agencies; and
Various associations and industry groups, such as the American Society of Addiction Medicine (ASAM).
Large, national retail pharmacies
Deliverable: Capstone provided an in-depth 47-slide final deck outlining the impact of the potential passage and implications of MOTAA nationally and in 10 states of the client’s choosing.
Overview: Capstone analyzed potential policy options as part of the One Big Beautiful Bill Act and outlined their respective impacts on total Medicaid enrollment and hospitals. As part of our work, we projected changes in both Medicaid enrollment and applications and surveyed hospitals for needs associated with beneficiary enrollment into Medicaid.
Process: Capstone spoke with roughly 2 dozen key stakeholders, including:
Relevant policymakers in both the House and Senate;
Revenue cycle directors in major hospital systems; and
State Medicaid directors.
Deliverable: Capstone provided an in-depth ~50 slide final deck, including an analysis of the most likely final OBBBA package and associated impacts to Medicaid enrollment over the next decade.
Overview: Capstone provided an overview of payment structures across systems, outlining how the core value propositions of the Company aligned with provider incentives. Additionally, Capstone provided an outlook for regulatory changes that could affect the value of the company’s services, including both payment structure reform and reimbursement changes that could impact provider ability to pay.
Process: Capstone spoke with ~20 stakeholders, including providers, payors, competitors, and lead lobbyists behind the home health and hospice industries.
Capstone assessed interoperability-associated disintermediation risk, including analysis of trends toward digital quality reporting, digital HEDIS, bulk FHIR APIs, and national data exchange through TEFCA.
Deliverable: Capstone provided an in-depth 50-slide deck, including an analysis of ROI for the company’s primary offerings and 5-year reimbursement outlooks for respective industries.
Overview: Capstone evaluated the policy and reimbursement environment impacting the applied behavior analysis space in key states. This included an analysis of healthcare regulatory dynamics such as minimum wage requirements and scrutiny of PE ownership, as well as commercial and Medicaid reimbursement rate trends.
Process: Capstone spoke with more than 3 dozen key stakeholders, including:
ABA providers and payors, including medical directors, BCBAs, RBTs, and behavior case managers;
State lawmakers, government affairs officials, and state Medicaid agencies; and
Various autism advocacy organizations.
Deliverable: Capstone provided an in-depth 65-slide final deck outlining the impact of healthcare policy on an ABA provider, as well as Medicaid and commercial reimbursement rate outlook over the next 3-5 years.
Overview: Capstone provided an overview and outlook of policies impacting personal care services in Arizona, including historical rate volume trends for the target’s top services and a scenario analysis detailing how policy changes would impact those trends. This included assessing perspectives on the value and utilization growth of personal care services and levers available to both the state and payors to potentially limit/encourage growth.
Process: Capstone spoke with roughly 2 dozen key stakeholders, including:
Experts from managed care organizations;
Key providers in the home care space; and
Advocates in other states.
Deliverable: Capstone provided an in-depth, 30+ slide final deck, including an analysis of risks to the current structure and offerings of personal care benefits within Arizona Medicaid.
Overview: Capstone evaluated the policy environment impacting the fertility benefits space in the US and Europe. This included an analysis of utilization trends, efforts to expand access to IVF, outlook for coverage expansion, and thesis development on fertility services in a post-Dobbs world.
Process: Capstone spoke with more than 3 dozen key stakeholders, including:
Large fertility providers, reproductive tissue banks, and academic centers;
State lawmakers, government affairs officials, and lobbyists for industry peers; and
Various reproductive rights associations.
Deliverable: Capstone provided an in-depth, 75-slide final deck, along with regular update calls on the developing policy environment and relevant court cases impacting the global fertility space.
Overview: Capstone analyzed historical and go-forward commercial and Medicare reimbursement for major ASC services, procedures, and top infused products. Additionally, Capstone analyzed state certificate of need policies, Medicaid supplemental payment programs, and site of care trends on a code-by-code basis.
Process: Capstone spoke with ~20 key stakeholders, including:
National and regional payors;
Competitors; and
Policymakers and industry lobbying groups.
Our work outlined how major policy changes in the ASC payment system, including shifts in the covered procedure list and annual rate updates, and implementation of the IRA would affect reimbursement for the company’s top services and products over the next 5-7 years.
Capstone surveyed top payors to identify priorities in shifts of services from the hospital to the ASC setting, including incentives and preferences given to contracted providers.
Overview: Capstone provided an in-depth, 50+ slide final deck with an additional 100-slide appendix and Excel supplement highlighting variance in commercial reimbursement on a payor and provider-specific basis for all key codes and drugs.
Overview: Capstone evaluated the policy landscape, market opportunity, and competitive landscape for a value-based care enablement tool focused on quality and risk assessment across payor verticals, including Medicare Advantage, Medicaid, and commercial insurers. Capstone’s analysis focused on federal regulation and state regulatory dynamics in 6 key states, as well as key market dynamics.
Process: Capstone performed primary and secondary market research, including:
Speaking with 20 key regulators/stakeholders; and
Surveying 60 end-user decision makers of VBC enablement tools.
Capstone estimated the market opportunity and forecasted the TAM, SAM, and VM for the company’s core customers using enrollment and VBC data sets.
Capstone defined the competitive landscape for the company’s core services and geographic expansion opportunity.
Capstone gathered market perspectives from current operators and customers.
Capstone assessed interoperability-associated disintermediation risk, including analysis of trends toward digital quality reporting, digital HEDIS, bulk FHIR APIs, and national data exchange through TEFCA.
Deliverable: Capstone provided an in-depth, 170-slide deck for our client’s deal team on key policy and commercial issues, as well as a 15-slide investment committee deck distilling key takeaways for the client.
Overview: Capstone evaluated the federal regulatory landscape surrounding a value-based care provider that takes full delegated risk from both Medicare Advantage plans and participates in Medicare FFS programs, such as MSSP and ACO REACH. Capstone’s analysis focused on deriving the per-member-per-month (PMPM) increase or decrease to the Company’s revenue as a result of proposed federal laws and regulations, as well as an analysis of the health of the Medicare Advantage and Medicare FFS end markets based on recent history.
Process: Capstone spoke with key regulators/stakeholders, including:
Federal and state lawmakers;
Key decision makers for value-based contracting at Medicare Advantage plans; and
Key decision makers at value-based care providers.
Capstone estimated the per-member-per-month impact of proposed federal laws and regulations to quantify the impact of passage on value-based care providers.
Capstone created a fan of outcomes for potential changes in contracting dynamics among national, regional, and “blues” payors with VBC partners to understand the potential risks or opportunities for provider partners over the next 5 years.
Deliverable: Capstone provided an in-depth, 80-slide deck for our client’s deal team on key policy and contracting dynamic questions, as well as a 10-slide deck distilling key takeaways for the client to present to their investment committee.
Predicting the policy surrounding continued federal support of essential services and disaster recovery efforts in Puerto Rico
Quantifying the impact that federal funding and the restructuring of Puerto Rico’s debt obligations would have on Gross Domestic Product and read throughs to the local economy
Creating a strategy for investors to take advantage of this improvement in the economic outlook by investing in a consumer lending company based in Puerto Rico
Predicting the policy surrounding the three-tier model for alcohol distribution
Quantifying the impact of state-level changes to alcohol distribution policies and the risk posed to alcohol distributors from retailers engaging in self distribution and consumers purchasing from out-of-state vendors
Creating a strategy for the company to grow its revenue base in an increasingly competitive alcohol distribution market
Predicting the policy landscape in US healthcare to anticipate major changes impacting its markets
Quantifying the impact of these likely changes on the company’s revenue drivers, such as federal health programs and employer insurance markets
Creating a strategy for C-suite leadership to inform new market entry, revenue optimization, and effectively execute stakeholder building, communications, and advocacy
Predict the policy and regulatory environment enabling US governments and utilities to adopt technology that supports wildfire prediction and mitigation
Quantify the impact of future spending on technology investment for wildfire fighting to inform the strategy development of a new service offering
Create a strategy for the company to design its products with an informed view of customer needs and procurement requirements, as well as build a complementary strategic engagement strategy to soften the ground for its public sector-focused products and services
Predicting the policy landscape around the introduction of voluntary environmental protection credits
Quantifying the impact of the voluntary credits as a new revenue stream for decarbonization projects
Creating a strategy for the Chair’s office to become a leader in this space and incentivize the private sector to decarbonize without direct government support
Predicting the policy landscape around the Biden administration’s infrastructure bill before its passage to anticipate areas of opportunity
Quantifying the impact of new funding on the company’s existing and potential customer base, as well as how their customers will likely invest the funds
Creating a strategy to utilize billions of dollars in pre-RFP projects that helped the client prioritize regions and projects for their broker-dealer teams and get ahead of the competition
