The U.S. House Committee on Financial Services considered testimony on several bills that would impose new requirements on investment advisors and private equity funds.
The bills under consideration include:
H.R.3848, the "Stop Wall Street Looting Act of 2019," which would (i) require private equity funds and their investors to assume liability for debts incurred through acquired companies, (ii) ban capital distributions for two years after a leveraged buyout, (ii) require the SEC to promulgate private equity funds' annual marketing disclosure regulations and (iv) reduce a private equity's ability to be exempt from their fiduciary duty;
H.R. ____, the "Private Fund Board Disclosure Act of 2019," which would require (i) a private fund's investment advisers to report the board of directors' race, ethnicity and gender composition to the SEC, and (ii) the SEC to make the report public; and
H.R. ____, the "Investment Adviser Alignment Act," which would (i) define "private equity adviser" in addition to requiring certain report filings and (ii) impose a fiduciary duty on private equity funds.
Testimony on the "Stop Wall Street Looting Act of 2019"
Center for Economic and Policy Research Co-Director Eileen Appelbaum supported the bill, stating that it would end the "reckless loading of debt onto companies" by making the General Partner of a private equity fund and the firm itself jointly liable for such debts. She said that the majority of private equity acquisition deals involve smaller private equity funds acquiring small- or medium-sized companies that can benefit from the acquisition, such as improvements to governance, operations and strategy. Consequently, she argued that under the bill, this type of acquisition would not be affected.
Los Angeles County Employee Retirement Association Trustee Wayne Moore argued that under the bill, workers' savings would be protected through deferred wages and payroll deductions and, ultimately, secure retirement funds.
United for Respect leader Giovanna De La Rosa called for "real, deep change," explaining that under the bill, jobs would be protected by the regulation of private equity.
In his dissenting statement, Small Business Investor Alliance President Brett Palmer warned that the bill would "unintentionally cause serious harm" to small businesses' access to capital while lessening private equity funds' resources to invest in small- and medium-sized companies. He also argued that the bill is based on an "incorrect concept of investing."
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