The US House Committee on Financial Services’ has voted in favor of the Investment Advisers Modernization Act (H.R. 5424) by 47 votes to 12. The new rules would ease regulatory requirements on private equity funds.
The bill, co-sponsored by congressmen and committee members Robert Hurt (R-VA), Juan Vargas (D-CA), Steve Stivers (R-OH), and Bill Foster (D-IL), was first presented to the committee at a hearing in May, as reported by pfm. From here the House leadership will determine when the bill will be brought up before the House of Representatives for a vote, a spokesman for the Financial Services Committee told pfm.
All Republicans voting on the committee supported the bill, as did a majority of the committee’s Democratic members, according to a statement from private equity industry advocacy group the American Investment Council.
“This morning, we saw strong leadership by the committee – Democrats and Republicans alike – in advancing a pragmatic and necessary piece of legislation that will improve our regulatory environment,” AIC president and chief executive Mike Sommers said in the statement.
“I am particularly pleased by the bipartisan nature of this vote, and look forward to working with members from both sides of the aisle as this bill moves forward,” the AIC’s general counsel Jason Mulvihill added.
The Investment Advisers Modernization Act proposes updates to aspects of the Investment Advisers Act which was introduced in 1940. The amendments focus on several areas, including advertising rules that were adopted in 1961 with retail investors in mind, which can limit private equity firms who market to very sophisticated investors. Under the current advertising rules, private equity managers have found it difficult to comply with requests from LPs to see case studies of their investments.
However, in order for the bill to become law it would need to be approved by a majority of the members of the House of Representatives. Separately the same or a similar bill would need to be considered, voted on and approved by the US Senate. A single reconciled bill would then be presented to the President to be signed into law.
“The odds that this legislation will make it through these stages in this Congress are very low, which is reflective of the political environment,” Joel Wattenbarger, a partner in Ropes & Gray’s private investment funds practice told pfm.
As the current Congress is divided on a number of issues including financial services regulation, the draft legislation has a better chance of getting passed in the next term, Jason Brown, a partner in Ropes & Gray’s private investment funds team practice told pfm. The draft does not overhaul existing legislation but focuses on provisions that are less applicable to private equity, he noted.