Bill to Update Regulatory Burdens on Midsize Capital Providers Passes in House

Deborah L. Cohen | September 9, 2016 | Middle Market Growth

H.R. 5424 Wins in Vote of 261 to 145

A bipartisan bill to modernize longstanding reporting requirements for private equity firms passed in the U.S. House of Representatives on Friday, following support by ACG Global and its members.

Led by bill sponsors Robert Hurt, R-Va.; Juan Vargas, D-Calif.; Steve Stivers, R-Ohio; Bill Foster, D-Ill., Randy Hultgren, R-Ill.; and Krysten Sinema, D-Arizona, the Investment Advisers Modernization Act (H.R. 5424) tailors requirements of the Investment Advisers Act of 1940 to reflect the private equity investor model, while also maintaining SEC oversight and investor protections.

H.R. 5424 received a vote of 261 to 145, with 35 Democrats voting in favor of the bill.

As a result of Dodd-Frank, advisers of private funds with $150 million or more in assets under management must register with the Securities and Exchange Commission and comply with the reporting and compliance standards of the IAA. The new bill updates antiquated rules enacted prior to the development of private equity funds.

“This is a welcome step for midsize private capital providers who help bolster the U.S. economy by investing small and midsize American businesses that employ more than 15 million Americans,” said ACG Global President and CEO Gary LaBranche. “The bill’s thoughtful and modest reforms maintain important investor protections while modernizing the regulatory framework for advisers.”

Among other changes, H.R. 5424 adjusts books and records requirements to provide advisers with a set of guidelines that can be easily interpreted, exempts them from some advertising restrictions and removes duplicate reporting requirements.

The Association for Corporate Growth on Friday applauded passage of the bill. Earlier, it joined several other business organizations in a public letter of support, and one of its members testified before a House subcommittee.

“Small and midsize investors are significantly more sensitive to expensive regulatory burdens whose costs in time and money far exceed their benefits,” said Amber Landis, vice president of public policy for ACG Global. “The bill’s modest reforms maintain important investor protections while making the regulatory system a little more reasonable and a little less painful.”

Landis said she is hopeful that a companion bill will soon make its way to the Senate.

Middle-market businesses employ 48 million Americans and produce one-third of U.S. GDP. The legislation helps the advisers to small and midsize funds better comply with reporting requirements under the IAA and allows them to focus more attention on Main Street companies, ultimately resulting in more jobs. The existing one-size-fits-all compliance requirements cost small and midsize advisers critical time and hundreds of thousands of dollars, he added.

In mid-May, ACG PERT member Joshua Cherry-Seto, CFO of Blue Wolf Capital, testified before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises in support of the bill.

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