39–006 

113TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 113–276 

SMALL BUSINESS CAPITAL ACCESS AND JOB 

PRESERVATION ACT 

NOVEMBER 22, 2013.—Committed to the Committee of the Whole House on the 

State of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 1105] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 1105) to amend the Investment Advisers Act of 1940 to 

provide a registration exemption for private equity fund advisers, 

and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do 

pass. 

PURPOSE AND SUMMARY

Title IV of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (the Dodd-Frank Act) (Pub. L. No. 111–203) requires 

most advisers to private investment funds, including advisers to 

private equity funds, to register with the U.S. Securities and Exchange Commission (SEC). Private equity funds, however, neither 

caused nor contributed to the financial crisis, and requiring advisers to these funds to register with the SEC (at an estimated cost 

of $500,000 per fund) needlessly diverts capital, time, and effort 

from investment activities that could be creating jobs; rather than 

using these resources to create jobs, private equity funds will use 

them to comply with these new regulatory mandates that impose 

costs without reducing systemic risk. To eliminate these unnecessary yet costly burdens, H.R. 1105, the Small Business Capital AcVerDate Mar 15 2010 04:25 Nov 23, 2013 Jkt 039006 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\HR276.XXX HR276

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cess and Job Preservation Act, exempts advisers to certain private 

equity funds from these new registration requirements. More specifically, H.R. 1105 exempts advisers to private equity funds that 

have not borrowed and that do not have outstanding a principal 

amount in excess of twice their funded capital commitments. 

BACKGROUND AND NEED FOR LEGISLATION

Introduced by Rep. Robert Hurt, H.R. 1105, the Small Business 

Capital Access and Job Preservation Act, would exempt advisers to 

certain private equity funds from the new registration requirements imposed by Title IV of the Dodd-Frank Act. Title IV imposes 

new registration and reporting requirement on hedge funds and 

private equity firms. Specifically, Title IV requires investment advisers to private investment funds to register with the SEC under 

the Investment Advisers Act of 1940. Private funds are defined as 

those funds that would be investment companies under the Investment Company Act of 1940. H.R. 1105 would exempt from SEC 

registration advisers to private equity funds that have not borrowed and that do not have outstanding a principal amount in excess of twice their funded capital commitments. In the 112th Congress, Rep. Hurt introduced a similar bill, H.R. 1082, which the 

Committee reported by a voice vote on June 22, 2011. 

As Marc A. Reich, the President of Ironwood Capital, a private 

equity firm, testified on May 23, 2013, ‘‘H.R. 1105 strengthens the 

ecosystem of the private equity marketplace by reducing overregulation that threatens capital access for small businesses. This bill 

will help private equity funds by removing unnecessary regulatory 

burdens that are tying up precious resources and wasting investor 

capital which would otherwise be directed towards growing small 

businesses.’’ 

Under the Dodd-Frank Act, private fund advisers with assets 

under management of less than $150 million qualify for a limited 

exemption from registration if they comply with recordkeeping and 

reporting requirements to be established by the SEC. The DoddFrank Act also exempts ‘‘family offices’’ from registration, as those 

are defined by SEC rule. Lastly, advisers registered with the Commodity Futures Trading Commission (CFTC) as commodity trading 

advisers are exempt from registration, unless the business of the 

adviser becomes predominantly securities-related after the DoddFrank Act takes effect. 

As a result of Title IV’s registration requirements, advisers to 

private funds must maintain records and file reports with the SEC, 

which are made available to other regulators, including the Financial Stability Oversight Council (FSOC). The records are required 

to include the amount of assets under management and use of leverage, counterparty credit exposure, trading and investment positions, valuation policies and practices, types of assets held, side arrangements, trading practices, and other information deemed necessary by the SEC in consultation with the FSOC for the public interest or the assessment of systemic risk. 


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As Tom Quaadman from the Center on Capital Markets Competitiveness at the U.S. Chamber of Commerce testified at a May 

23, 2013, hearing before the Subcommittee on Capital Markets and 

Government Sponsored Enterprises, 

Private equity financing is an important form of financing for smaller businesses that are trying to grow. In fact, 

between 1995 and 2010, over 23,000 companies, employing 

3 million people, were backed by private capital. These 

firms grew jobs at a rate of 64% compared to other companies which only grew jobs at a rate of 18%. It should also 

be noted that private equity financing was not a cause of 

the financial crisis and that business models utilizing private equity financing do not pose interconnected risk to 

the economy. Yet, the Dodd-Frank Act requires that private equity firms must register with the SEC. This places 

upon the private equity firms onerous reporting requirements through form PF, including the valuation of privately held portfolio companies, as well as expensive custodial requirements for untradeable legend equities. Requirements such as these are not only costly; they are designed 

for public company investors, not investors in privately 

held companies. Thus, the requirements are also a mismatch for the investment model. 

H.R. 1105 does not alter the Securities and Exchange Commission’s authority provided by Section 404 of the Dodd-Frank Act to 

require that all private fund advisers maintain records and make 

them available to the SEC for the protection of investors or for the 

assessment of systemic risk by the Financial Stability Oversight 

Council. Title IV directs the SEC to periodically examine the 

records of private fund advisers, and it authorizes the SEC to conduct additional examinations as the SEC deems necessary. Private 

fund investment advisers are required to safeguard client assets 

over which they have custody, and assets must be verified by independent accountants. Taking into account the public interest and 

the economy, the SEC must increase the financial threshold for accredited investors, and is required to adjust that threshold every 

four years in the interests of investor protection. 

HEARINGS

The Committee on Financial Services’ Subcommittee on Capital 

Markets and Government Sponsored Enterprises held a hearing on 

H.R. 1105 on May 23, 2013. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

June 19, 2013, and ordered H.R. 1105 to be reported favorably to 

the House without amendment by a recorded vote of 38 yeas to 18 

nays (recorded vote no. FC–21), a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. 


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1. An amendment by Rep. Vela ́zquez to limit the registration exemption provided by the bill to advisers of funds that do not make 

use of the modification of rules required by section 201(a) of the 

Jumpstart Our Business Startups Act (JOBS Act) was not agreed 

to by a recorded vote of 24 yeas to 28 nays (recorded vote no. FC– 

19). 


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Representative 

Mr. Hensarling ••... ________ .• 

Mr. Gary G. Miller (CA) . __ . ___ _ 

Mr. Bachus_ .• _______________ _ 

Mr. King (NY) • _______________ _ 

Mr. Royce • _____ .. ___________ _ 

Mr. Lucas • _______ .... _______ _ 

Mrs. Capito _______________ ... 

Mr. Garrett _______ .. _________ _ 

Mr. Neugebauer _____________ _ 

Mr. McHenry _________________ _ 

Mr. Campbell ... _________ ... __ 

Mrs. Bachmann __________ .. __ 

Mr. McCarthy (CA) ______ .. ___ _ 

Mr. Pearce ___ • ___________ .. __ 

Mr. Posey .•• _________________ _ 

Mr. Fitzpatrick_ .. ____________ _ 

Mr. Westmorela nd 

Mr. Luetkemeyer __________ .. _ 

Mr. Huizenga (M!) . _______ . ___ _ 

Mr. Duffy ____________________ _ 

Mr. Hurt _____________________ _ 

Mr. Grimm __________________ _ 

Mr. Stivers _ .... _________ .. __ _ 

Mr. Fincher __________________ • 

Mr. Stutzman ______________ .. 

Mr. Mulvaney ________________ _ 

Mr. Hultgren . ______ • ________ ._ 

Mr. Ross ____________________ _ 

Mr. Pittenger ________________ _ 

Mrs. Wagner. ________________ _ 

Mr.Barr _____________________ _ 

Mr. Cotton __ .. ______________ _ 

Mr. Rothfus ____ .. ___________ . 

Record vote no. FC-19 

Yea Nay 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

Present Representative 

Ms Waters _________ • ________ . 

Mrs. Maloney (NY) ___________ _ 

Ms. Velazquez ______ • _______ __ 

Mr. Watt ____________________ _ 

Mr. Sherman ________________ _ 

Mr Meeks ___________________ _ 

Mr. Capuano ________________ _ 

Mr. Hinojosa . ____ .. __________ _ 

Mr. Clay __________________ .. __ 

Mrs. McCarthy (NY) __________ _ 

Mr. lynch . ______ . ___________ _ 

Mr. David Scott (GA) _________ _ 

Mr. AI Green (TX) __ .. ______ .. _ 

Mr. Cleaver _____ .... ___ ._. __ _ 

Ms. Moore _________ ._ ... _____ _ 

Mr. Ellison __ .. __________ ..... 

Mr. Perlmutter . __ .• __________ _ 

Mr. Himes .. __ •• ______ .. __ .... 

Mr. Peters (Mil _____ .... _ .. __ _ 

Mr. Carney __ .... __ ••••. ___ .. . 

Ms. Sewell (AL) _._ ... ___ .... _. 

Mr. Foster __ .. ___ •• __________ _ 

Mr. Kildee _______________ ..... 

Mr. Murphy (FU ___ ._ .... ____ _ 

Mr. Delaney ._ ... ________ .. __ _ 

Ms. Sinema _____ ...... ______ _ 

Mrs. Beatty ._._ ••• ___________ . 

Mr. Heck (WA) • ____ . ______ •••• 

Yea Nay 

x 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

Present 
6 

2. An amendment by Rep. Maloney to strike the registration exemption provided by the bill and insert in its place a requirement 

that the SEC devise a simplified procedure for registration of investment advisers to qualifying funds was not agreed to by a recorded vote of 26 yeas to 30 nays (recorded vote no. FC–20). 


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Representative 

Mr. Hensarling ..............• 

Mr. Gary G. Miller (CA) ....... . 

Mr. Bachus .......•.•........• 

Mr. King (NY) ........... __ .. .. 

Mr. Royce ................. __ . 

Mr. Lucas ____ .............. __ 

Mrs. Capito ................. .. 

Mr. Garrett ........ __ .. __ .... . 

Mr. Neugebauer ............. _ 

Mr. McHenry ................ .. 

Mr. Campbell ........ __ ..... .. 

Mrs. Bachmann ............ .. 

Mr. McCarthy (CA) .......... __ 

Mr. Pearce .. _ .............. .. 

Mr. Posey ..... __ . __ ........ _ .. 

Mr. Fitzpatrick ...... ____ ..... . 

Mr. Westmoreland 

Mr. Luetkemeyer .... __ ..... __ 

Mr. Huizenga (MIl .. __ ... ____ . 

Mr. Duffy ___ ................ .. 

Mr Hurt ........ _ .......... _ .. 

Mr. Grimm .................. _ 

Mr. Stivers .................. _ 

Mr. Fincher .................. . 

Mr. Stutzman .............. .. 

Mr. Mulvaney ................ _ 

Mr. Hultgren ................ .. 

Mr. Ross ................ __ .. . 

Mr. Pittenger ...... __ ........ . 

Mrs. Wagner ................ __ 

Mr. Barr ...... __ .. ____ .... __ __ 

Mr. Cotton .................. . 

Mr. Rothfus ............ __ • __ . 

Record vote no. FC-20 

Yea Nay 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

Present Representative 

Ms Waters .................. . 

Mrs. Maloney (NY) ........... . 

Ms. Velazquez .. _ ........... __ 

Mr. Watt ................ ___ .. 

Mr. Sherman ............. __ __ 

Mr Meeks .. __ ....... __ ...... _ 

Mr. Capuano .... __ ......... .. 

Mr. Hinojosa .... ____ ...... __ . 

Mr. Clay .... _____ .......... __ • 

Mrs. McCarthy (NY) ......... .. 

Mr. Lynch ......... __ ....... __ 

Mr. David Scott (GA) ......... . 

Mr. AI Green (TX) .. __ ........ . 

Mr. Cleaver ....... ____ ..... .. 

Ms. Moore ....... _ ..... ____ ... 

Mr. Ellison ............. ____ .. 

Mr. Perlmulter ............... . 

Mr. Himes __ .... __ ... _ ....... . 

Mr. Peters (MI) . ______ .... __ .. 

Mr. Carney __ ....... __ .. __ •••• 

Ms. Sewell (AL) ............. .. 

Mr. Foster ................... . 

Mr Klldee ........... __ ..... .. 

Mr. Murphy (Fl) __________ ... _ 

Mr. Delaney ____ ...... ____ .. __ 

Ms. Sinema .• ______ ......... _ 

Mrs. Beatty ................. .. 

Mr. Heck (WA) ........ __ . __ .. . 

Yea 

x 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

Nay Present 
8 

3. A motion by Chairman Hensarling to report the bill (H.R. 

1105) to the House with a favorable recommendation was agreed 

to by a record vote of 38 yeas to 18 nays (recorded vote no. FC– 

21). 


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Representative 

Mr. Hensarling _____________ __ 

Mr. Gary G. Miller (CAl ______ __ 

Mr. Bachus .. ________________ _ 

Mr. King (NY) _______________ __ 

Mr. Royce __________________ __ 

Mr. Lucas ___________________ _ 

Mrs. Capito .. _______________ __ 

Mr. Garrett _________________ __ 

Mr. Neugebauer ____________ __ 

Mr_ McHenry ________________ __ 

Mr. Campbell .. ______________ _ 

Mrs. Bachmann ____________ __ 

Mr. McCarthy (CAl ___________ _ 

Mr. Pearce _________________ __ 

Mr. Posey. __________________ __ 

Mr. Fitzpatrick .. _____________ _ 

Mr. Westmoreland 

Mr. Luetkemeyer ____________ _ 

Mr. Huizenga (MI) __________ __ 

Mr. Duffy ____________________ _ 

Mr. Hurt ____________________ __ 

Mr. Grimm __________________ _ 

Mr. Stivers __________________ _ 

Mr. Fmcher _________________ __ 

Mr. Stutzman _______________ __ 

Mr. Mulvaney ________________ _ 

Mr. Hultgren .. ______________ __ 

Mr. Ross ___________________ •. 

Mr. Pittenger ________________ _ 

Mrs_ Wagner .. _______________ _ 

Mr. Barr _____________________ _ 

Mr. Cotton _________________ __ 

Mr. Rothfus ____________ • ____ _ 

Record vote no. FC-21 

Yea Nay 

x 

X 

X 

X 

X 

X 

X 

X 

X 

X 

)( 

X 

X 

X 

X 

X 

X 

X 

X 

)( 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

Present Representative 

Ms. Waters -------~ ~ ~-- ~ ------ Mrs. Maloney (NY) ____________ 

Ms. Velazquez ________________ 

Mr.Watt _ __ ___ ~ ~~ ~~~ ____ ~4* ~. 

Mr. Sherman - ------~~ .. ¥ - - - ---

Mr. Meeks ---~--.- - -- -----.---

Mr. Capuano 

Mr. Hinojosa _________________ 

Mr. Clay .. ____________________ 

Mrs. McCarthy (NY) ___________ 

Mr. Lynch ____________________ 

Mr. David Scott (GA) __________ 

Mr. AI Green (IX) _____________ 

Mr. Cleaver _.-.-._-----_._._.-

Ms. Moore ------- --~-- ----- ---

Mr. Ellison ___ ~~ __ v ~ ________ ~ ~ 

Mr. Perlmutter .--*~~~-------~~ 

Mr. Himes -------------------- Mr. Peters (Mil _______________ 

Mr. Carney ___________________ 

Ms. Sewell (AL) _______________ 

Mr. Foster _~ ~* ~ ~ _ ~ ____ __ M ••• M. 

Mr. Kildee --- ----~.-~~- --" -~-~ 

Mr. Murphy (FU ______________ 

Mr. Delaney __________________ 

Ms. Sinema --- - -- --- -------~ ~ 

Mrs. Beatty. __________________ 

Mr. Heck (WA) ________________ 

Yea Nay Present 

X 

X 

X 

X 

X 

X 

X 

X 

X a. ~ ____ 

----~ --

X 

X 

X 

------- . ~ -~---

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 
10 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has held hearings and made 

findings that are reflected in this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 1105, among 

other things, exempts investment advisers to certain qualifying private equity funds if the adviser maintains records and provides reports to the SEC pursuant to applicable regulation. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, July 9, 2013. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1105, the Small Business 

Capital Access and Job Preservation Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

ROBERT A. SUNSHINE

(For Douglas W. Elmendorf, Director). 

Enclosure. 

H.R. 1105—Small Business Capital Access and Job Preservation 

Act 

H.R. 1105 would exempt investment advisers from the Security 

and Exchange Commission’s (SEC’s) registration and reporting reVerDate Mar 15 2010 04:25 Nov 23, 2013 Jkt 039006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR276.XXX HR276

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quirements when they provide advice to a private equity fund with 

outstanding debt that is less than twice the amount of capital that 

has been committed to and invested by the fund. The bill would direct the SEC to adopt rules requiring exempt advisors to maintain 

records and provide reports to the commission as deemed necessary 

based on the fund’s size, governance, risk, and investment strategy. 

Under current law, investment advisers do not have to register or 

report to the SEC if they advise only venture capital funds that 

meet certain qualifications. 

Based on information from the SEC, CBO expects that implementing H.R. 1105 would not have a significant effect on the agency’s workload. Therefore, we estimate that implementing the bill 

would not have a significant effect on spending that is subject to 

appropriation. Further, the SEC is authorized to collect fees sufficient to offset its annual appropriation; therefore, CBO estimates 

that the net budgetary effect of implementing H.R. 1105 would be 

negligible. Enacting H.R. 1105 would not affect direct spending or 

revenues; therefore, pay-as-you-go procedures do not apply. 

H.R. 1105 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

not affect the budgets of state, local, or tribal governments. 

The CBO staff contact for this estimate is Susan Willie. The estimate was approved by Theresa Gullo, Deputy Assistant Director 

for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 1105 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), the 

Committee states that no provision of H.R. 1105 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 


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related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013), the 

Committee states that H.R. 1105 directs the SEC to issue rules to 

require investment advisers exempted from registration by the bill 

to maintain records and file reports with the SEC and to define 

‘‘private equity fund’’ for purposes of the bill. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This Section cites H.R. 1105 as the ‘‘Small Business Capital and 

Job Preservation Act.’’ 

Section 2. Registration and reporting exemptions relating to private 

equity funds advisors 

This section amends section 203 of the Investment Advisers Act 

of 1940 by adding at the end of section 203 a provision exempting 

investment advisers to qualifying funds from the registration and 

reporting requirements of title IV of the Dodd-Frank Act provided 

that such investment advisers maintain records and file periodic 

reports with the SEC in accordance with rules that the SEC shall 

prescribe. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (new matter is printed in italic 

and existing law in which no change is proposed is shown in 

roman): 

INVESTMENT ADVISERS ACT OF 1940 

* * * * * * * 

TITLE II—INVESTMENT ADVISERS 

* * * * * * * 

REGISTRATION OF INVESTMENT ADVISERS

SEC. 203. (a) * * * 

* * * * * * * 

(o) EXEMPTION OF AND REPORTING REQUIREMENTS BY PRIVATE

EQUITY FUNDS ADVISORS.— 

(1) IN GENERAL.—Except as provided in this subsection, no 

investment adviser shall be subject to the registration or reporting requirements of this title with respect to the provision of investment advice relating to a private equity fund or funds, provided that each such fund has not borrowed and does not have 

outstanding a principal amount in excess of twice its invested 

capital commitments. 


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(2) MAINTENANCE OF RECORDS AND ACCESS BY COMMISSION.— Not later than 6 months after the date of enactment of this subsection, the Commission shall issue final rules— 

(A) to require investment advisers described in paragraph 

(1) to maintain such records and provide to the Commission such annual or other reports as the Commission taking into account fund size, governance, investment strategy, 

risk, and other factors, as the Commission determines necessary and appropriate in the public interest and for the 

protection of investors; and 

(B) to define the term ‘‘private equity fund’’ for purposes 

of this subsection. 

* * * * * * * 


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MINORITY VIEWS ON H.R. 1105 

The Dodd-Frank Wall Street Reform and Consumer Protection 

Act brought many firms and pools of capital out of the ‘‘shadow’’ 

financial system and into the daylight by requiring hedge fund and 

private equity fund advisors with more than $150 million of assets 

under management to register with the Securities and Exchange 

Commission (SEC) as investment advisers and provide information 

about their trades and portfolios. Under the Act, the SEC shares 

this data with the Financial Stability Oversight Board (FSOC) and 

reports to Congress annually on how it uses this data for the protection of investors and the preservation of market integrity. 

Today, private equity fund advisers have registered with the 

SEC, and have been making systemic risk reports for more than 

a year. As registered investment advisers, private equity firms 

must provide advice that is the best interest of the investor, basic 

disclosures about an employee who violated securities laws, the adviser’s business practices, its fees, and any conflicts of interest. In 

addition, registered advisers must have a compliance program, a 

code of ethics and a chief compliance officer for each fund manager. 

While we recognize that complying with such requirements does 

have a cost and that some disclosures and registration requirements could be streamlined, we believe the benefits of reduced systemic risk and increased investor protection outweighs these costs. 

H.R. 1105 exempts private equity fund advisors levered by less 

than a 2-to-1 ratio from both making these systemic risk reports, 

as well as from the investor protections of adviser registration. In 

practice, because private equity firms leverage the purchased companies, and not the fund, all private equity funds would likely be 

exempted. As we have heard before, this year, one witness testified 

that the leverage at the purchased companies is itself an element 

of risk. Information about these companies is precisely the type of 

data that should be available to the FSOC to analyze. 

Additionally, H.R. 1105 would exempt private equity fund advisers just as the SEC seeks to finalize a provision of the Jumpstart 

Our Business Startups Act of 2012 (JOBS Act) that permits general solicitation and advertising of private equity funds and other 

private securities. Investor advocates have raised strong concerns 

that the pensions of hard working Americans, as well as individual 

retirees, would now be targeted to invest in these funds. Removing 

investor protections related to private equity funds just as this provision of the JOBS Act goes into effect is short-sighted. 

During consideration of H.R. 1105, Democrats offered two improvements to the bill, but both were rejected by Republicans. Ms. 

Vela ́zquez offered an amendment to limit the exemption to firms 

that did not use public solicitation. Ms. Maloney’s amendment 

would have eliminated the exemption, and instead required the 

SEC to adopt simplified disclosure and registration requirements 


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for smaller private equity firms, striking a balance between industry cost concerns on the one hand, and systemic risk mitigation and 

investor protection on the other. Both were rejected on a party-line 

vote. 

As a result, because H.R. 1105 limits the ability of the FSOC to 

monitor systemic risk in the financial system, and prevents the 

SEC from protecting investors in private equity funds, we oppose 

the bill. 

MAXINE WATERS. 

STEPHEN F. LYNCH. 

CAROLYN B. MALONEY. 

MICHAEL E. CAPUANO. 

AL GREEN. 

WM. LACY CLAY. 

JOYCE BEATTY. 

KEITH ELLISON. 

DANIEL T. KILDEE. 

DENNY HECK. 

MELVIN L. WATT. 

Æ 


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