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House approves reporting relief for private funds and advisers

The House of Representatives on Friday approved legislation that would reduce some reporting and disclosure requirements for private equity funds and other investment advisers.

Sponsored by bipartisan members of the House Financial Services Committee, it was approved by a vote of 261-145, including 35 Democrats.

The Senate has not acted on it, and the White House has promised to veto it.

The Investment Advisers Modernization Act of 2016 is aimed at streamlining parts of the Investment Advisers Act and removing some duplicative reporting burdens. It would reduce some requirements for private equity firms reporting through Form PF and going through annual audits of client funds and holdings. It would also change the custody rule by only requiring publicly traded securities to use a qualified custodian and expanding an exemption for privately offered securities, and relax advertising limits for fund advisers.

The bill is supported by the Investment Adviser Association, American Investment Council and the Association for Corporate Growth, whose president and CEO, Gary LaBranche, described the changes as streamlining an “antiquated regulatory structure” for private funds. AIC President Mike Sommers, who called the proposed modifications “thoughtful,” said they would be “an excellent start to addressing a series of issues in this space.”

Large investors, including several international unions and the $305.7 billion California Public Employees' Retirement System, Sacramento, oppose the bill, warning it would undo Dodd-Frank provisions that brought greater transparency into private equity funds, prevent fraud by advisers and help regulators monitor systemic risk in private funds. In a letter to House leaders, Council of Institutional Investors general counsel Jeff Mahoney, whose members hold $3 trillion in assets, said the measure would roll back “important transparency and reporting requirements that we and many of our members believe are critical to investor protection.”

A White House statement said the House bill “would enable private fund advisers to slip back into the shadows” and make it harder for investors to verify underlying investments.