At a hearing this week, leadership in the Senate Banking Committee expressed interest in resurrecting a legislative package that failed to pass last summer. The package, which gained wide bipartisan support in the House, would affect private capital providers by expanding the qualifiers to become an accredited investor beyond the current income-only test.
Federal Reserve Chairman Jerome Powell gave testimony before the committees responsible for the Central Bank’s oversight as part of his semiannual testimony to both houses of Congress. On Tuesday, he spoke to the Senate about topics including macroeconomic trends and implementing changes to Dodd-Frank. The next day, Powell went before the House Financial Services Committee, where he and legislators continued the discussion.
Chair of Senate Banking Committee Prioritizes Capital Formation
The Senate Banking Committee held a hearing Thursday to revisit provisions from the JOBS 3.0 package that passed out of the House last Congress but subsequently stalled in the Senate. Chairman Mike Crapo, R-Idaho, used the hearing to highlight several bills from the package and expressed a desire for them to be reconsidered by Congress.
The JOBS 3.0 package received immense bipartisan support in the House of Representatives before the most recent election, passing the lower chamber on a vote of 406-4 in July. However, its prospects in the Senate are unclear as Sen. Sherrod Brown, D-Ohio, the Committee’s ranking member, questioned whether such legislation was necessary.
Hearing Draws Anti-Private Equity Sentiment
Heather Slavkin Corzo, head of capital markets policy for the AFL-CIO and a witness for the hearing, devoted a large portion of her testimony presenting a negative impression of private equity firms and their effect on the economy.
Corzo expressed concern for the declining number of initial public offerings as private equity ownership has increased. She also alleged private equity-owned companies may be placing excessive leverage on companies and putting employees and company solvency at risk, and that private equity investment advisers may be unclear in the fees and expenses they charge to both portfolio companies and investors. Sen. Catherine Cortez-Masto, D-Nev., echoed Ms. Corzo’s concerns.
These comments underscore the importance of education surrounding middle-market private equity, a continued focus of ACG’s public policy efforts.
Expanding the Definition of an Accredited Investor
Committee chairman Crapo made special note of the Fair Investment Opportunities for Professional Experts Act, which would expand the definition of an accredited investor to include additional, education-based qualifications. Currently, the qualifications to become an accredited investor are solely based on income and net-worth. Accredited investors are able to invest in a variety of private offerings deemed to be more ‘sophisticated’ and carry higher risks, such as private equity and venture capital offerings.
The proposed bill, introduced in the Senate by Sen. Thom Tillis, R-N.C., received strong support from witness Catherine Mott, CEO of BlueTree Capital and BlueTree Allied Angels, who made special note that in the Midwest, $200,000 in yearly income (the current income threshold) is the equivalent of $450,000 in New York. Thomas Quaadman, executive vice president at the U.S. Chamber Center for Capital Markets Competitiveness, echoed the sentiment that the bill would be extremely beneficial.
Fed Chair Jerome Powell Gives Humphrey-Hawkins Testimony
This week, Federal Reserve Chairman Jerome Powell gave semiannual testimony as required by the Full Employment and Balanced Growth Act of 1978.
Senate Banking Committee
On Tuesday, Powell testified in front of the Senate Banking Committee. His testimony mostly centered on macroeconomic trends, such as slower growth abroad, the uncertainty regarding trade relations, and the impact of tax reform, and rising budgets, in addition to his focus on the safety and soundness and trends in the banks the Fed regulates.
Powell said implementing the Economic Growth, Regulatory Relief, and Consumer Protection Act, a bill tailoring portions of the Dodd-Frank Act for smaller banking institutions, was among his top priorities. Committee Chairman Crapo noted the regulatory changes that are being made to the Volcker Rule and expressed a need for revisiting the definition of a covered fund, an issue ACG has previously advocated.
House Financial Services Committee
Powell’s testimony before the House Financial Services Committee on Wednesday was similar to the testimony he provided the day prior. Much of the questioning centered on regulatory issues. Less than half of the members of the Financial Services Committee participated in the hearing. Newer members, such as Rep. Alexandria Ocasio-Cortez, D-N.Y., were among those not present.
Rep. Gregory Meeks, D-N.Y., questioned Powell on the leveraged loan market. The Fed chairman said he did not think there was macroeconomic risk posed by company leverage, noting banks monitored by the Fed do not hold the majority of leveraged loans on their balance sheets.
Rep. Bill Huizenga, R-Mich., said long-term funds don’t threaten the security of the financial system, and asked for updates on the covered funds provisions in the Volcker Rule. Chair Powell noted that the Fed is looking very carefully at the issue, but he did not elaborate.
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Maria Wolvin is ACG Global’s vice president and senior counsel, public policy.
Ben Marsico is ACG Global’s manager of legislative and regulatory affairs.