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114th Congress   }                                      {       Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                      {      114-698

======================================================================



 
             INVESTMENT ADVISERS MODERNIZATION ACT OF 2016

                                _______
                                

 July 21, 2016.--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. 5424]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 5424) to amend the Investment Advisers Act of 
1940 and to direct the Securities and Exchange Commission to 
amend its rules to modernize certain requirements relating to 
investment advisers, and for other purposes, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Investment Advisers Modernization Act 
of 2016''.

SEC. 2. MODERNIZING CERTAIN REQUIREMENTS RELATING TO INVESTMENT 
                    ADVISERS.

  (a) Investment Advisory Contracts.--
          (1) Assignment.--
                  (A) Assignment defined.--Section 202(a)(1) of the 
                Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(1)) 
                is amended by striking ``; but'' and all that follows 
                and inserting ``; but no assignment of an investment 
                advisory contract shall be deemed to result from the 
                death or withdrawal, or the sale or transfer of the 
                interests, of a minority of the members, partners, 
                shareholders, or other equity owners of the investment 
                adviser having only a minority interest in the business 
                of the investment adviser, or from the admission to the 
                investment adviser of one or more members, partners, 
                shareholders, or other equity owners who, after such 
                admission, shall be only a minority of the members, 
                partners, shareholders, or other equity owners and 
                shall have only a minority interest in the business.''.
                  (B) Consent to assignment by qualified clients.--
                Section 205(a)(2) of the Investment Advisers Act of 
                1940 (15 U.S.C. 80b-5(a)(2)) is amended by inserting 
                before the semicolon the following: ``, except that if 
                such other party is a qualified client (as defined in 
                section 275.205-3 of title 17, Code of Federal 
                Regulations, or any successor thereto), such other 
                party may provide such consent at the time the parties 
                enter into, extend, or renew such contract''.
          (2) Not required to provide for notification of change in 
        membership of partnership.--Section 205 of the Investment 
        Advisers Act of 1940 (15 U.S.C. 80b-5) is amended--
                  (A) in subsection (a)--
                          (i) in paragraph (1), by striking the 
                        semicolon and inserting ``; or'';
                          (ii) in paragraph (2), by striking ``; or'' 
                        and inserting a period; and
                          (iii) by striking paragraph (3); and
                  (B) in subsection (d), by striking ``paragraphs (2) 
                and (3) of subsection (a)'' and inserting ``subsection 
                (a)(2)''.
  (b) Advertising Rule.--
          (1) In general.--Not later than 90 days after the date of the 
        enactment of this Act, the Commission shall amend section 
        275.206(4)-1 of title 17, Code of Federal Regulations, to 
        provide that paragraphs (a)(1) and (a)(2) of such section do 
        not apply to an advertisement that an investment adviser 
        publishes, circulates, or distributes solely to persons 
        described in paragraph (2) of this subsection.
          (2) Persons described.--A person is described in this 
        paragraph if such person is, or the investment adviser 
        reasonably believes such person is--
                  (A) a qualified client (as defined in section 
                275.205-3 of title 17, Code of Federal Regulations), 
                determined as of the time of the publication, 
                circulation, or distribution of the advertisement 
                rather than immediately prior to or after entering into 
                the investment advisory contract referred to in such 
                section;
                  (B) a knowledgeable employee (as defined in section 
                270.3c-5 of title 17, Code of Federal Regulations) of 
                any private fund to which the investment adviser acts 
                as an investment adviser;
                  (C) a qualified purchaser (as defined in section 2(a) 
                of the Investment Company Act of 1940 (15 U.S.C. 80a-
                2(a))); or
                  (D) an accredited investor (as defined in section 
                230.501 of title 17, Code of Federal Regulations), 
                determined as if the investment adviser were the issuer 
                of securities referred to in such section and the time 
                of the publication, circulation, or distribution of the 
                advertisement were the sale of such securities.

SEC. 3. REMOVING DUPLICATIVE BURDENS AND APPROPRIATELY TAILORING 
                    CERTAIN REQUIREMENTS.

  (a) Brochure Delivery.--Not later than 90 days after the date of the 
enactment of this Act, the Commission shall amend section 275.204-3(c) 
of title 17, Code of Federal Regulations, to provide that an investment 
adviser is not required to deliver a brochure or brochure supplement to 
a client that is a limited partnership, limited liability company, or 
other pooled investment vehicle for which each limited partner, member, 
or other equity owner has received, before purchasing a security issued 
by the pooled investment vehicle, a prospectus, private placement 
memorandum, or other offering document containing (to the extent 
material to an understanding of the pooled investment vehicle, the 
business of the pooled investment vehicle, and the securities being 
offered by the pooled investment vehicle) substantially the same 
information as would be required by Part 2A or 2B of Form ADV at the 
time of delivery of the brochure or brochure supplement, as the case 
may be.
  (b) Form PF.--Not later than 90 days after the date of the enactment 
of this Act, the Commission shall amend section 275.204(b)-1 of title 
17, Code of Federal Regulations, to provide that an investment adviser 
to a private fund is not required to report any information beyond that 
which is required by sections 1a and 1b of Form PF, unless such 
investment adviser is a large hedge fund adviser or a large liquidity 
fund adviser (as such terms are defined in such Form).
  (c) Custody Rule.--Not later than 90 days after the date of the 
enactment of this Act, the Commission shall amend section 275.206(4)-2 
of title 17, Code of Federal Regulations, as follows:
          (1) The Commission shall provide additional exceptions to the 
        independent verification requirement of paragraph (a)(4) of 
        such section for an investment adviser with respect to funds 
        and securities of a limited partnership (or a limited liability 
        company or other type of pooled investment vehicle), as 
        follows:
                  (A) An exception that applies if the outstanding 
                securities (other than short-term paper, as defined in 
                section 2(a) of the Investment Company Act of 1940 (15 
                U.S.C. 80a-2(a))) of the pooled investment vehicle are 
                beneficially owned exclusively by--
                          (i) the investment adviser;
                          (ii) affiliated persons of the investment 
                        adviser;
                          (iii) supervised persons of the investment 
                        adviser;
                          (iv) officers, directors, and employees of 
                        the affiliated persons of the investment 
                        adviser;
                          (v) family members and former family members 
                        (as such terms are defined in section 
                        275.202(a)(11)(G)-1 of title 17, Code of 
                        Federal Regulations) of persons described in 
                        clause (iii) or (iv); or
                          (vi) officers, directors, employees, or 
                        affiliated persons of, or persons who provide, 
                        have provided, or have entered into a contract 
                        to provide services to--
                                  (I) the investment adviser of the 
                                pooled investment vehicle;
                                  (II) one or more clients of the 
                                investment adviser of the pooled 
                                investment vehicle; or
                                  (III) issuers from which the pooled 
                                investment vehicle or any other client 
                                of the investment adviser of the pooled 
                                investment vehicle has acquired 
                                securities, such as the portfolio 
                                company of a private fund.
                  (B) An exception that applies if the pooled 
                investment vehicle has been established to hold only 
                the securities of a single issuer in which one or more 
                pooled investment vehicles managed by the investment 
                adviser have acquired a controlling interest.
          (2) Consistent with, and expanding on, IM Guidance Update No. 
        2013-04, titled ``Privately Offered Securities under the 
        Investment Advisers Act Custody Rule'', published by the 
        Division of Investment Management of the Commission, the 
        Commission shall, with respect to the exception for certain 
        privately offered securities in paragraph (b)(2) of such 
        section--
                  (A) remove the requirement of clause (i)(B) of such 
                paragraph (relating to the uncertificated nature and 
                recordation of ownership of the securities); and
                  (B) remove the requirement of clause (ii) of such 
                paragraph (relating to audit and financial statement 
                distribution requirements with respect to securities of 
                pooled investment vehicles).
  (d) Proxy Voting Rule.--Not later than 90 days after the date of the 
enactment of this Act, the Commission shall amend section 275.206(4)-6 
of title 17, Code of Federal Regulations, to provide that such section 
does not apply to any voting authority with respect to client 
securities that are not public securities.

SEC. 4. FACILITATING ROBUST CAPITAL FORMATION BY PREVENTING REGULATORY 
                    MISMATCH.

  The Commission may not--
          (1) amend section 230.156 of title 17, Code of Federal 
        Regulations, to extend the provisions of such section to 
        offerings of securities issued by private funds; or
          (2) adopt rules applicable to offerings of securities issued 
        by private funds that are substantially the same as the 
        provisions of such section.

SEC. 5. EXCLUSION OF ADVISORY SERVICES TO REGISTERED INVESTMENT 
                    COMPANIES.

  This Act shall not apply with respect to advisory services provided, 
or proposed to be provided, to an investment company registered under 
the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.).

SEC. 6. REFERENCES TO REGULATIONS.

  In this Act, any reference to a regulation shall be construed to 
refer to such regulation or any successor thereto.

SEC. 7. DEFINITIONS.

  In this Act:
          (1) Public security.--The term ``public security'' means a 
        security issued by an issuer that--
                  (A) is required to submit reports under section 13(a) 
                or 15(d) of the Securities Exchange Act of 1934 (15 
                U.S.C. 78m(a); 78o(d)); or
                  (B) has a security that is listed or traded on any 
                exchange or organized market operating in a foreign 
                jurisdiction.
          (2) Terms defined in investment advisers act of 1940.--The 
        terms defined in section 202(a) of the Investment Advisers Act 
        of 1940 (15 U.S.C. 80b-2(a)) have the meanings given such terms 
        in such section.

                          Purpose and Summary

    Introduced by Representatives Robert Hurt, Bill Foster, 
Randy Hultgren, Kyrsten Sinema, Steve Stivers and Juan Vargas, 
on June 9, 2016, H.R. 5424, the Investment Advisers 
Modernization Act of 2016, updates the application of the 
Investment Advisers Act of 1940 (``Advisers Act'') to better 
reflect today's capital markets. The Investment Advisers 
Modernization Act of 2016, as amended, would make modest, 
common sense modifications to the IAA while maintaining strong 
regulatory oversight of investment advisers.

                  Background and Need for Legislation

    The rationale for most federal securities regulation is to 
protect ordinary investors. Under this rationale, federal 
securities regulation is supposed to protect those investors 
who may lack the sophistication to knowledgably invest in 
complex or esoteric securities, or who may not be wealthy 
enough to withstand significant losses on their investments. By 
contrast, investors who have significant personal wealth or 
expertise are considered to be sufficiently sophisticated that 
they do not require the same level of protection that the 
securities laws afford to other investors. These investors 
often pool their funds in private investment vehicles to expand 
the reach of their investment portfolios beyond equity 
securities or mutual funds to include real estate, oil and gas 
partnerships, or private equity or debt offerings. Private 
equity funds are an important source of capital in the economy 
and were not a cause of the 2008 financial crisis. They should 
not be subject to stifling regulations that only have the 
effect of limiting private equity's ability to invest in 
American businesses.
    Mr. Joshua Cherry-Seto, Chief Financial Officer of Blue 
Wolf Capital Partners, LLC, testified before the Subcommittee 
on Capital Markets and Government Sponsored Enterprises on May 
17, 2016, in support of H.R. 5424 and he observed that as a 
result of the Advisers Act's ``ambiguity, firms like ours spend 
many hours and significant dollars trying to comply with ill-
fitting rules for our industry that don't further the intent to 
protect our investors, including spending investor resources on 
advisors and lawyers to try to interpret regulations not 
specifically written with our industry in mind.''

Private equity

    Private equity firms are also structured as limited 
partnerships, but unlike hedge funds they usually employ just 
one main investment strategy: buying and selling other 
businesses. Most private equity firms provide financing and 
management to financially troubled existing businesses or to 
start-up businesses, or they create buyout funds by acquiring 
ownership positions in businesses of all sizes, usually through 
a leveraged buyout. Both types of private equity investments 
seek to make profits for their investors by improving the 
business operations of the companies they acquire, rearranging 
their capital structure, or selling the business through an 
initial public offering or to a larger company.

Private investment funds and the Dodd-Frank Act

    Title IV of the Dodd-Frank Act imposes new registration and 
reporting requirements on advisers to hedge funds and private 
equity funds. Title IV also eliminated an exemption for 
advisers that serve less than fifteen clients, an exemption 
that was commonly exercised by private fund advisers. Title IV 
requires investment advisers to private investment funds to 
register with the Securities and Exchange Commission (SEC) 
under the Advisers Act. Private funds are defined as those 
funds that meet the definition of investment companies under 
the Advisers Act.
    Title IV of the Dodd-Frank Act exempts from registration 
advisers to VC funds (as defined by the SEC's definition) as 
well as advisers to Small Business Investment Companies 
(SBICs). 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 established by the SEC. The Dodd-Frank Act also 
exempts ``family offices'' from registration, as those are 
defined by SEC rule. Lastly, advisers registered with the 
Commodity Futures Trading Commission as commodity trading 
advisers are exempt from registration, unless the business of 
the adviser becomes predominantly securities-related.
    Title IV's registration requirements impose a duty on the 
advisers to private funds to maintain records and file reports 
with the SEC, which are made available to other regulators, 
including the Financial Stability Oversight Council. These 
records must 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 the SEC, in consultation with the Financial 
Stability Oversight Council, deems necessary to promote the 
public interest or facilitate the assessment of systemic risk.
    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.
    Advisers also must report on Form ADV general information 
about private funds that they manage, such as basic 
organizational and operational information, fund size and 
ownership. Form PF is filed by SEC-registered investment 
advisers with at least $150 million in private funds assets 
under management to report information about the private funds 
that they manage. Most advisers file Form PF annually to report 
general information such as the types of private funds advised 
(e.g., hedge funds or private equity), each fund's size, 
leverage, liquidity and types of investors. Certain larger 
advisers provide more information on a more frequent basis 
(including more detailed information on certain larger funds).

SEC Regulation of private funds

    The SEC has reported that since the enactment of the Dodd-
Frank Act, approximately 1,800 advisers to hedge funds and 
private equity funds have registered with the SEC. Beginning in 
2013, the SEC began to conduct ``presence'' examinations, which 
``are more streamlined than typical examinations, and are 
designed both to engage with the new registrants to inform them 
of their obligations as registered entities and to permit the 
Commission to examine a higher percentage of new registrants.'' 
While the SEC's stated examination goal is to identify systemic 
risks at private funds, the examinations have mainly served to 
identify deficiencies related to investor protection. 
Unfortunately, once the adviser to a private equity fund became 
subject to the SEC's jurisdiction, the SEC has 
disproportionately focused on these firms, rather than asset 
managers. Former SEC Commissioner Dan Gallagher testified 
before the Subcommittee on Capital Markets and Government 
Sponsored Enterprises on May 17, 2016 that, ``such advisers 
must bear the burden of the ongoing compliance costs that come 
with SEC registration and reporting on Form PF. This will 
continue to impose significant costs and burdens not only on 
the private advisers, but also on the Commission. And yet, this 
expansion of our regulatory reach will not serve to protect 
ordinary retail investors, but rather investors who could, as 
the Supreme Court so notably said, ``fend for themselves.''
    It is also important to note that the Advisers Act was 
enacted in 1940 to address the roles and responsibilities of 
investment advisers, which at the time included investment 
trusts and investment companies. Many of the Act's provisions 
are structured around investment advisers' involvement with 
publicly traded securities and retail-facing investors, and 
this does not fit the business model of the private equity 
industry.
    Given the antiquated application of the statute and the 
growth of private equity, private fund advisers now registered 
with the SEC are required to comply with numerous requirements 
that do not fit their business model. Private fund advisers 
spend hundreds of thousands, if not millions of dollars on 
complying with these rules and have dedicated countless hours 
to compiling information and reports, which provides little to 
no benefit to regulators or the investment community. 
Commissioner Gallagher notes that the Act is not the best legal 
framework for the regulation of private fund advisers and that, 
``higher costs will threaten the ability of certain funds--such 
as certain private equity funds--to promote capital formation 
through investments in operating companies. And let me be 
clear: capital formation leads to job creation, which is 
something we could certainly use right now. Indeed, around 
4,100 private equity firms headquartered in the U.S. currently 
back about 14,300 American businesses. These private equity-
backed companies have hired around 7.5 million employees as of 
March 2016.''
    Private equity fund advisers have engaged regularly with 
the SEC in hopes of modifying the reporting requirements so 
that they are appropriate for such funds and are more helpful 
to regulators. H.R. 5424, the Investment Advisers Modernization 
Act of 2016, would make several modifications to the IAA as it 
relates to private fund registration while largely maintaining 
the existing regulatory structure for investment advisers. 
Specifically, the bill would remove or modernize some of the 
more unnecessary and overly burdensome requirements in the IAA 
that serve only to drive up the costs for funds and investors, 
and that hinder the efficient allocation of capital that helps 
grow businesses and jobs. For example, the bill would permit 
advisers to advertise previous recommendations to certain 
clients, modify rules related to the assignment of advisory 
contracts, and revise the custody rule for advisers to funds 
and securities of a limited partnership. Additionally, the bill 
would reduce Form PF reporting obligations for certain adviser.

Conclusion

    Mr. Cherry-Seto noted that H.R. 5424, ``provides a 
modernized, clear and rational regulatory framework for 
advisers to comply with, given current realities. This will 
allow for regulatory oversight that is efficient and 
meaningful, while allowing private equity advisers to continue 
to focus on growing companies, providing important returns to 
our investors, and most importantly, creating new jobs, now and 
into the future.''

                                Hearing

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Enterprises held a hearing 
examining matters relating to H.R. 5424 on May 17, 2016.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
June 16, 2016, and ordered H.R. 5424 to be reported favorably 
to the House as amended by a recorded vote of 47 yeas to 12 
nays (recorded vote no. FC-109), 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. The 
sole record vote in committee was a motion by Chairman 
Hensarling to report the bill favorably to the House as 
amended. That motion was agreed to by a recorded vote of 47 
yeas to 12 nays (Record vote no. FC-109), a quorum being 
present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of 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. 5424 
will modernize aspects of the Investment Advisers Act (IAA) by 
removing duplicative burdens, address practical concerns with 
the IAA, and help facilitate capital formation. H.R. 5424 will 
also help the SEC prioritize its limited resources towards the 
protection of less sophisticated investors who invest through 
an Investment Adviser.

   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 12, 2016.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
U.S. House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5424, the 
Investment Advisers Modernization Act of 2016.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 5424--Investment Advisers Modernization Act of 2016

    Under current law, the Securities and Exchange Commission 
(SEC) enforces rules and requirements for advertising, 
transferring, and selling funds and securities by investment 
advisers. H.R. 5424 would provide investment advisers several 
exemptions from certain of those requirements. It also would 
prohibit the SEC from applying its rules to private funds that 
provide sales literature about their securities offerings.
    On the basis of information provided by the SEC, CBO 
estimates that implementing H.R. 5424 would cost $2 million 
over the 2017-2021 period for increased administrative 
activities related to revising current agency rules. However, 
the SEC is authorized to collect fees sufficient to offset its 
annual appropriation; therefore, CBO estimates that the net 
effect on discretionary spending would be negligible, assuming 
appropriations actions consistent with that authority.
    Enacting H.R. 5424 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply. CBO 
estimates that enacting H.R. 5424 would not increase net direct 
spending or on-budget deficits in any of the four consecutive 
10-year periods beginning in 2027.
    H.R. 5424 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    If the SEC increases fees to offset any costs of 
implementing the bill, H.R. 5424 would increase the cost of an 
existing mandate on private entities required to pay those 
fees. Based on information from the SEC, CBO estimates that the 
aggregate cost of the mandate, if imposed, would be minimal and 
would fall well below the annual threshold for private-sector 
mandates established in UMRA ($154 million in 2016, adjusted 
annually for inflation).
    The CBO staff contact for this estimate is Stephen Rabent. 
The estimate was approved by H. Samuel Papenfuss, 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. 5424 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(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 5424 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 related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 5424 directs the SEC to both 
revise and amend certain rules as directed by the legisaltion.

             Section-by-Section Analysis of the Legislation


Section 1: Short title

    This section cites H.R. 5424 as the ``Investment Advisers 
Modernization Act of 2016.''

Section 2: Modernizing certain requirements relating to investment 
        advisers

    This section makes the following changes:
    1) Removes Overly-Broad Restrictions on Assignments:
    Updates the definition of ``assignment'' to clarify that an 
assignment shall not be deemed to result from the death, 
withdrawal, sale or transfer of minority interests. Allows 
qualified clients to consent to transfer of interests at the 
time they enter into an advisory contract.
    2) Adjusts Outdated and Duplicative Requirements Regarding 
Any Change in Membership:
    Allows advisers organized as partnerships to change the 
composition of the partnership without providing notice every 
time there is a change in the partnership.
    3) Modifies Advertising Rule:
    This section would remove the applicability of Rule 206(4)-
1(a)(1) & (a)(2) for advisers who advertise exclusively to 
accredited investors, qualified clients, qualified purchasers, 
or knowledgeable employees. It is important to note that the 
basic anti-fraud provisions for private funds remain in place 
under Rule 206(4)-8, and the other portions of the advertising 
rule will remain in effect.

Section 3: Removing duplicative burdens and appropriately tailoring 
        certain requirements

    This section makes the following changes:
    1) Appropriately Tailors Brochure Requirements on Part 2 of 
Form ADV:
    Exempts private fund sponsors from requirement to complete 
and deliver Part 2A & 2B, provided that the private placement 
memorandum contains the information required by the form (to 
the extent such information is material to the offering by the 
private fund). Private fund sponsors could still complete and 
deliver Part 2A & 2B if they so choose.
    2) Appropriately Tailors Form PF:
    Removes the special section (Part 4) on Form PF for private 
equity funds and their portfolio companies and places them on 
the same reporting basis as other private fund sponsors who are 
not large hedge fund or liquidity fund sponsors. Advisers to 
private equity firms would still report all of the information 
required in Part 1 of Form PF, which will provide the Financial 
Stability Oversight Council the information that it needs to 
assess the financial system as required by the Dodd-Frank Act.
    3) Updates the Custody Rule:
    The SEC has already limited application of the Custody Rule 
for private equity firms through interpretive guidance in two 
separate instances--acknowledging that the Custody Rule in many 
respects places unfair costs and burdens on private equity 
firms. The proposed legislation further develops the guidance 
already issued by the SEC by expanding the ``privately offered 
securities'' exemption so that it applies to both certificated 
and uncertificated securities and providing an exemption for 
special purpose vehicles (SPV) managed by private fund sponsors 
and co-investment funds that hold only one investment.
    4) Adjusts Proxy Voting Rule in a Common Sense Way
    Provides an exemption from the rule where an investment 
adviser exercises voting authority only with respect to non-
public securities.

Section 4: Facilitating robust capital formation by preventing 
        regulatory mismatch

    This section would prevent the misapplication of Rule 156 
in the private funds space, thereby enabling both regulators 
and investors alike to understand that private funds and mutual 
funds are significantly different types of investment vehicles.

         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 (existing law 
proposed to be omitted is enclosed in black brackets, 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

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                              definitions

  Sec. 202. (a) When used in this title, unless the context 
otherwise requires, the following definitions shall apply:
          (1) ``Assignment'' includes any direct or indirect 
        transfer or hypothecation of an investment advisory 
        contract by the assignor or of a controlling block of 
        the assignor's outstanding voting securities by a 
        security holder of the assignor[; but if the investment 
        adviser is a partnership, no assignment of an 
        investment advisory contract shall be deemed to result 
        from the death or withdrawal of a minority of the 
        members of the investment adviser having only a 
        minority interest in the business of the investment 
        adviser, or from the admission to the investment 
        adviser of one or more members who, after such 
        admission, shall be only a minority of the members and 
        shall have only a minority interest in the business.]; 
        but no assignment of an investment advisory contract 
        shall be deemed to result from the death or withdrawal, 
        or the sale or transfer of the interests, of a minority 
        of the members, partners, shareholders, or other equity 
        owners of the investment adviser having only a minority 
        interest in the business of the investment adviser, or 
        from the admission to the investment adviser of one or 
        more members, partners, shareholders, or other equity 
        owners who, after such admission, shall be only a 
        minority of the members, partners, shareholders, or 
        other equity owners and shall have only a minority 
        interest in the business.
          (2) ``Bank'' means (A) a banking institution 
        organized under the laws of the United States or a 
        Federal savings association, as defined in section 2(5) 
        of the Home Owners' Loan Act, (B) a member bank of the 
        Federal Reserve System, (C) any other banking 
        institution, savings association, as defined in section 
        2(4) of the Home Owners' Loan Act, or trust company, 
        whether incorporated or not, doing business under the 
        laws of any State or of the United States, a 
        substantial portion of the business of which consists 
        of receiving deposits or exercising fiduciary powers 
        similar to those permitted to national banks under the 
        authority of the Comptroller of the Currency, and which 
        is supervised and examined by State or Federal 
        authority having supervision over banks or savings 
        associations, and which is not operated for the purpose 
        of evading the provisions of this title, and (D) a 
        receiver, conservator, or other liquidating agent of 
        any institution or firm included in clauses (A), (B), 
        or (C) of this paragraph.
          (3) The term ``broker'' has the same meaning as given 
        in section 3 of the Securities Exchange Act of 1934.
          (4) ``Commission'' means the Securities and Exchange 
        Commission.
          (5) ``Company'' means a corporation, a partnership, 
        an association, a joint-stock company, a trust, or any 
        organized group of persons, whether incorporated or 
        not; or any receiver, trustee in a case under title 11 
        of the United States Code, or similar official, or any 
        liquidating agent for any of the foregoing, in his 
        capacity as such.
          (6) ``Convicted'' includes a verdict, judgment, or 
        plea of guilty, or a finding of guilt on a plea of nolo 
        contendere, if such verdict, judgment, plea, or finding 
        has not been reversed, set aside, or withdrawn, whether 
        or not sentence has been imposed.
          (7) The term ``dealer'' has the same meaning as given 
        in section 3 of the Securities Exchange Act of 1934, 
        but does not include an insurance company or investment 
        company.
          (8) ``Director'' means any director of a corporation 
        or any person performing similar functions, with 
        respect to any organization, whether incorporated or 
        unincorporated.
          (9) ``Exchange'' means any organization, association, 
        or group of persons, whether incorporated or 
        unincorporated, which constitutes, maintains, or 
        provides a market place or facilities for bringing 
        together purchasers and sellers of securities or for 
        otherwise performing with respect to securities the 
        functions commonly performed by a stock exchange as 
        that term is generally understood, and includes the 
        market place and the market facilities maintained by 
        such exchange.
          (10) ``Interstate commerce'' means trade, commerce, 
        transportation, or communication among the several 
        States, or between any foreign country and any State, 
        or between any State and any place or ship outside 
        thereof.
          (11) ``Investment adviser'' means any person who, for 
        compensation, engages in the business of advising 
        others, either directly or through publications or 
        writings, as to the value of securities or as to the 
        advisability of investing in, purchasing, or selling 
        securities, or who, for compensation and as part of a 
        regular business, issues or promulgates analyses or 
        reports concerning securities; but does not include (A) 
        a bank, or any bank holding company as defined in the 
        Bank Holding Company Act of 1956, which is not an 
        investment company, except that the term ``investment 
        adviser'' includes any bank or bank holding company to 
        the extent that such bank or bank holding company 
        serves or acts as an investment adviser to a registered 
        investment company, but if, in the case of a bank, such 
        services or actions are performed through a separately 
        identifiable department or division, the department or 
        division, and not the bank itself, shall be deemed to 
        be the investment adviser; (B) any lawyer, accountant, 
        engineer, or teacher whose performance of such services 
        is solely incidental to the practice of his profession; 
        (C) any broker or dealer whose performance of such 
        services is solely incidental to the conduct of his 
        business as a broker or dealer and who receives no 
        special compensation therefor; (D) the publisher of any 
        bona fide newspaper, news magazine or business or 
        financial publication of general and regular 
        circulation; (E) any person whose advice, analyses, or 
        reports relate to no securities other than securities 
        which are direct obligations of or obligations 
        guaranteed as to principal or interest by the United 
        States, or securities issued or guaranteed by 
        corporations in which the United States has a direct or 
        indirect interest which shall have been designated by 
        the Secretary of the Treasury, pursuant to section 
        3(a)(12) of the Securities Exchange Act of 1934, as 
        exempted securities for the purposes of that Act; (F) 
        any nationally recognized statistical rating 
        organization, as that term is defined in section 
        3(a)(62) of the Securities Exchange Act of 1934, unless 
        such organization engages in issuing recommendations as 
        to purchasing, selling, or holding securities or in 
        managing assets, consisting in whole or in part of 
        securities, on behalf of others;; (G) any family 
        office, as defined by rule, regulation, or order of the 
        Commission, in accordance with the purposes of this 
        title; or (H) such other persons not within the intent 
        of this paragraph, as the Commission may designate by 
        rules and regulations or order.
          (12) ``Investment company'', affiliated person, and 
        ``insurance company'' have the same meanings as in the 
        Investment Company Act of 1940. ``Control'' means the 
        power to exercise a controlling influence over the 
        management or policies of a company, unless such power 
        is solely the result of an official position with such 
        company.
          (13) ``Investment supervisory services'' means the 
        giving of continuous advice as to the investment of 
        funds on the basis of the individual needs of each 
        client.
          (14) ``Means or instrumentality of interstate 
        commerce'' includes any facility of a national 
        securities exchange.
          (15) ``National securities exchange'' means an 
        exchange registered under section 6 of the Securities 
        Exchange Act of 1934.
          (16) ``Person'' means a natural person or a company.
          (17) The term ``person associated with an investment 
        adviser'' means any partner, officer, or director of 
        such investment adviser (or any person performing 
        similar functions), or any person directly or 
        indirectly controlling or controlled by such investment 
        adviser, including any employee of such investment 
        adviser, except that for the purposes of section 203 of 
        this title (other than subsection (f) thereof), persons 
        associated with an investment adviser whose functions 
        are clerical or ministerial shall not be included in 
        the meaning of such term. The Commission may by rules 
        and regulations classify, for the purposes of any 
        portion or portions of this title, persons, including 
        employees controlled by an investment adviser.
          (18) ``Security'' means any note, stock, treasury 
        stock, security future, bond, debenture, evidence of 
        indebtedness, certificate of interest or participation 
        in any profit-sharing agreement, collateral-trust 
        certificate, preorganization certificate or 
        subscription, transferable share, investment contract, 
        voting-trust certificate, certificate of deposit for a 
        security, fractional undivided interest in oil, gas, or 
        other mineral rights, any put, call, straddle, option, 
        or privilege on any security (including a certificate 
        of deposit) or on any group or index of securities 
        (including any interest therein or based on the value 
        thereof), or any put, call, straddle, option, or 
        privilege entered into on a national securities 
        exchange relating to foreign currency, or, in general, 
        any interest or instrument commonly known as a 
        ``security'', or any certificate of interest or 
        participation in, temporary or interim certificate for, 
        receipt for, guaranty of, or warrant or right to 
        subscribe to or purchase any of the foregoing.
          (19) ``State'' means any State of the United States, 
        the District of Columbia, Puerto Rico, the Virgin 
        Islands, or any other possession of the United States.
          (20) ``Underwriter'' means any person who has 
        purchased from an issuer with a view to, or sells for 
        an issuer in connection with, the distribution of any 
        security, or participates or has a direct or indirect 
        participation in any such undertaking, or participates 
        or has a participation in the direct or indirect 
        underwriting of any such undertaking; but such term 
        shall not include a person whose interest is limited to 
        a commission from an underwriter or dealer not in 
        excess of the usual and customary distributor's or 
        seller's commission. As used in this paragraph the term 
        ``issuer'' shall include in addition to an issuer, any 
        person directly or indirectly controlling or controlled 
        by the issuer, or any person under direct or indirect 
        common control with the issuer.
          (21) ``Securities Act of 1933'', ``Securities 
        Exchange Act of 1934'', and ``Trust Indenture Act of 
        1939'', mean those Acts, respectively, as heretofore or 
        hereafter amended.
          (22) ``Business development company'' means any 
        company which is a business development company as 
        defined in section 2(a)(48) of title I of this Act and 
        which complies with section 55 of title I of this Act, 
        except that--
                  (A) the 70 per centum of the value of the 
                total assets condition referred to in sections 
                2(a)(48) and 55 of title I of this Act shall be 
                60 per centum for purposes of determining 
                compliance therewith;
                  (B) such company need not be a closed-end 
                company and need not elect to be subject to the 
                provisions of sections 55 through 65 of title I 
                of this Act; and
                  (C) the securities which may be purchased 
                pursuant to section 55(a) of title I of this 
                Act may be purchased from any person.
        For purposes of this paragraph, all terms in sections 
        2(a)(48) and 55 of title I of this Act shall have the 
        same meaning set forth in such title as if such company 
        were a registered closed-end investment company, except 
        that the value of the assets of a business development 
        company which is not subject to the provisions of 
        sections 55 through 65 of title I of this Act shall be 
        determined as of the date of the most recent financial 
        statements which it furnished to all holders of its 
        securities, and shall be determined no less frequently 
        than annually.
          (23) ``Foreign securities authority'' means any 
        foreign government, or any governmental body or 
        regulatory organization empowered by a foreign 
        government to administer or enforce its laws as they 
        relate to securities matters.
          (24) ``Foreign financial regulatory authority'' means 
        any (A) foreign securities authority, (B) other 
        governmental body or foreign equivalent of a self-
        regulatory organization empowered by a foreign 
        government to administer or enforce its laws relating 
        to the regulation of fiduciaries, trusts, commercial 
        lending, insurance, trading in contracts of sale of a 
        commodity for future delivery, or other instruments 
        traded on or subject to the rules of a contract market, 
        board of trade or foreign equivalent, or other 
        financial activities, or (C) membership organization a 
        function of which is to regulate the participation of 
        its members in activities listed above.
          (25) ``Supervised person'' means any partner, 
        officer, director (or other person occupying a similar 
        status or performing similar functions), or employee of 
        an investment adviser, or other person who provides 
        investment advice on behalf of the investment adviser 
        and is subject to the supervision and control of the 
        investment adviser.
          (26) The term ``separately identifiable department or 
        division'' of a bank means a unit--
                  (A) that is under the direct supervision of 
                an officer or officers designated by the board 
                of directors of the bank as responsible for the 
                day-to-day conduct of the bank's investment 
                adviser activities for one or more investment 
                companies, including the supervision of all 
                bank employees engaged in the performance of 
                such activities; and
                  (B) for which all of the records relating to 
                its investment adviser activities are 
                separately maintained in or extractable from 
                such unit's own facilities or the facilities of 
                the bank, and such records are so maintained or 
                otherwise accessible as to permit independent 
                examination and enforcement by the Commission 
                of this Act or the Investment Company Act of 
                1940 and rules and regulations promulgated 
                under this Act or the Investment Company Act of 
                1940.
          (27) The terms ``security future'' and ``narrow-based 
        security index'' have the same meanings as provided in 
        section 3(a)(55) of the Securities Exchange Act of 
        1934.
          (28) The term ``credit rating agency'' has the same 
        meaning as in section 3 of the Securities Exchange Act 
        of 1934.
          (29) The term ``private fund'' means an issuer that 
        would be an investment company, as defined in section 3 
        of the Investment Company Act of 1940 (15 U.S.C. 80a-
        3), but for section 3(c)(1) or 3(c)(7) of that Act.
          (30) The term ``foreign private adviser'' means any 
        investment adviser who--
                  (A) has no place of business in the United 
                States;
                  (B) has, in total, fewer than 15 clients and 
                investors in the United States in private funds 
                advised by the investment adviser;
                  (C) has aggregate assets under management 
                attributable to clients in the United States 
                and investors in the United States in private 
                funds advised by the investment adviser of less 
                than $25,000,000, or such higher amount as the 
                Commission may, by rule, deem appropriate in 
                accordance with the purposes of this title; and
                  (D) neither--
                          (i) holds itself out generally to the 
                        public in the United States as an 
                        investment adviser; nor
                          (ii) acts as--
                                  (I) an investment adviser to 
                                any investment company 
                                registered under the Investment 
                                Company Act of 1940; or
                                  (II) a company that has 
                                elected to be a business 
                                development company pursuant to 
                                section 54 of the Investment 
                                Company Act of 1940 (15 U.S.C. 
                                80a-53), and has not withdrawn 
                                its election.
          (29) The terms ``commodity pool'', ``commodity pool 
        operator'', ``commodity trading advisor'', ``major swap 
        participant'', ``swap'', ``swap dealer'', and ``swap 
        execution facility'' have the same meanings as in 
        section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
  (b) No provision in this title shall apply to, or be deemed 
to include, the United States, a State, or any political 
subdivision of a State, or any agency, authority, or 
instrumentality of any one or more of the foregoing, or any 
corporation which is wholly owned directly or indirectly by any 
one or more of the foregoing, or any officer, agent, or 
employee of any of the foregoing acting as such in the course 
of his official duty, unless such provision makes specific 
reference thereto.
  (c) Consideration of Promotion of Efficiency, Competition, 
and Capital Formation.--Whenever pursuant to this title the 
Commission is engaged in rulemaking and is required to consider 
or determine whether an action is necessary or appropriate in 
the public interest, the Commission shall also consider, in 
addition to the protection of investors, whether the action 
will promote efficiency, competition, and capital formation.

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                     investment advisory contracts

  Sec. 205. (a) No investment adviser registered or required to 
be registered with the Commission shall enter into, extend, or 
renew any investment advisory contract, or in any way perform 
any investment advisory contract entered into, extended, or 
renewed on or after the effective date of this title, if such 
contract--
          (1) provides for compensation to the investment 
        adviser on the basis of a share of capital gains upon 
        or capital appreciation of the funds or any portion of 
        the funds of the client[;]; or
          (2) fails to provide, in substance, that no 
        assignment of such contract shall be made by the 
        investment adviser without the consent of the other 
        party by the contract, except that if such other party 
        is a qualified client (as defined in section 275.205-3 
        of title 17, Code of Federal Regulations, or any 
        successor thereto), such other party may provide such 
        consent at the time the parties enter into, extend, or 
        renew such contract [; or].
          [(3) fails to provide, in substance, that the 
        investment adviser, if a partnership, will notify the 
        other party to the contract of any change in the 
        membership of such partnership within a reasonable time 
        after such change.]
  (b) Paragraph (1) of subsection (a) shall not--
          (1) be construed to prohibit an investment advisory 
        contract which provides for compensation based upon the 
        total value of a fund averaged over a definite period, 
        or as of definite dates, or taken as of a definite 
        date;
          (2) apply to an investment advisory contract with--
                  (A) an investment company registered under 
                title I of this Act, or
                  (B) any other person (except a trust, 
                governmental plan, collective trust fund, or 
                separate account referred to in section 
                3(c)(11) of title I of this Act), provided that 
                the contract relates to the investment of 
                assets in excess of $1 million,
        if the contract provides for compensation based on the 
        asset value of the company or fund under management 
        averaged over a specified period and increasing and 
        decreasing proportionately with the investment 
        performance of the company or fund over a specified 
        period in relation to the investment record of an 
        appropriate index of securities prices or such other 
        measure of investment performance as the Commission by 
        rule, regulation, or order may specify;
          (3) apply with respect to any investment advisory 
        contract between an investment adviser and a business 
        development company, as defined in this title, if (A) 
        the compensation provided for in such contract does not 
        exceed 20 per centum of the realized capital gains upon 
        the funds of the business development company over a 
        specified period or as of definite dates, computed net 
        of all realized capital losses and unrealized capital 
        depreciation, and the condition of section 
        61(a)(3)(B)(iii) of title I of this Act is satisfied, 
        and (B) the business development company does not have 
        outstanding any option, warrant, or right issued 
        pursuant to section 61(a)(3)(B) of title I of this Act 
        and does not have a profit-sharing plan described in 
        section 57(n) of title I of this Act;
          (4) apply to an investment advisory contract with a 
        company excepted from the definition of an investment 
        company under section 3(c)(7) of title I of this Act; 
        or
          (5) apply to an investment advisory contract with a 
        person who is not a resident of the United States.
  (c) For purposes of paragraph (2) of subsection (b), the 
point from which increases and decreases in compensation are 
measured shall be the fee which is paid or earned when the 
investment performance of such company or fund is equivalent to 
that of the index or other measure of performance, and an index 
of securities prices shall be deemed appropriate unless the 
Commission by order shall determine otherwise.
  (d) As used in [paragraphs (2) and (3) of subsection (a)] 
subsection (a)(2), ``investment advisory contract'' means any 
contract or agreement whereby a person agrees to act as 
investment adviser to or to manage any investment or trading 
account of another person other than an investment company 
registered under title I of this Act.
  (e) The Commission, by rule or regulation, upon its own 
motion, or by order upon application, may conditionally or 
unconditionally exempt any person or transaction, or any class 
or classes of persons or transactions, from subsection (a)(1), 
if and to the extent that the exemption relates to an 
investment advisory contract with any person that the 
Commission determines does not need the protections of 
subsection (a)(1), on the basis of such factors as financial 
sophistication, net worth, knowledge of and experience in 
financial matters, amount of assets under management, 
relationship with a registered investment adviser, and such 
other factors as the Commission determines are consistent with 
this section. With respect to any factor used in any rule or 
regulation by the Commission in making a determination under 
this subsection, if the Commission uses a dollar amount test in 
connection with such factor, such as a net asset threshold, the 
Commission shall, by order, not later than 1 year after the 
date of enactment of the Private Fund Investment Advisers 
Registration Act of 2010, and every 5 years thereafter, adjust 
for the effects of inflation on such test. Any such adjustment 
that is not a multiple of $100,000 shall be rounded to the 
nearest multiple of $100,000.
  (f) Authority to Restrict Mandatory Pre-dispute 
Arbitration.--The Commission, by rule, may prohibit, or impose 
conditions or limitations on the use of, agreements that 
require customers or clients of any investment adviser to 
arbitrate any future dispute between them arising under the 
Federal securities laws, the rules and regulations thereunder, 
or the rules of a self-regulatory organization if it finds that 
such prohibition, imposition of conditions, or limitations are 
in the public interest and for the protection of investors.

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                             MINORITY VIEWS

    H.R. 5424 seeks to provide regulatory relief to investment 
advisers to private funds, particularly private equity funds, 
which would reduce transparency and make it harder for the 
Securities and Exchange Commission (SEC) to protect investors 
in those funds. The bill also fails to address the needs of 
investors for greater protections and disclosures, as evidenced 
by recent SEC exams and enforcement actions.
    In the Dodd-Frank Act, we sought to bring transparency and 
oversight over the shadow banking system, particularly for 
private equity funds and hedge funds. Specifically, we required 
advisors to these funds with more than $150 million in assets 
to register with the SEC, comply with new recordkeeping, 
reporting, and audit requirements, and file systemic risk 
reports with the Financial Stability Oversight Council (FSOC).
    H.R. 5424 would change this new regime by removing 
important investor protections including the requirements that 
such advisers: notify clients of a change in ownership or 
control of the adviser; deliver a plain language narrative 
brochure to clients each year; and disclose to the FSOC certain 
information on large private equity funds. Worse, H.R. 5424 
would create a Madoff loophole by providing a broad exemption 
from the annual audit requirement for funds owned by investors 
who may have a tangential relationship with the adviser, such 
as a caterer or building manager.
    H.R. 5424 is also problematic because it fails to address 
the problems that the SEC has uncovered as a result of its new 
oversight of private fund advisers. In 2013, the SEC found that 
in cases where it examined how fees and expenses are handled, 
it identified violations of law or material weaknesses in 
controls over 50% of the time. In 2014 and 2015, the SEC 
brought numerous enforcement actions against private equity 
fund managers for: misallocating expenses to funds; failing to 
disclose loans from clients; using funds to pay their operating 
expenses without authorization and disclosure; and failing to 
disclose fees and discounts from service providers. Finally, 
last month, the SEC Director of Enforcement highlighted a need 
for greater transparency into fees and expenses.
    Considering that one-quarter of the equity in private 
equity funds comes from public pension funds--who invest on 
behalf of our nation's teachers, police officers and 
firefighters--we should not be repealing important protections 
and failing to address the need for additional protections. 
CalPERS, the largest public pension fund in the U.S.; CalSTRS, 
which provides retirement benefits to California's public 
school teachers; and the Institutional Limited Partners 
Association, which represents a large swath of investors in 
private equity funds, agree and oppose H.R. 5424.
    For all of these reasons, we oppose H.R. 5424.

                                   Maxine Waters.
                                   Emanuel Cleaver.
                                   Stephen Lynch.
                                   Keith Ellison.
                                   Gwen Moore.
                                   Al Green.
                                   Wm. Lacy Clay.

                                  [all]