Warren Stand on Private Equity Under Scrutiny at House Hearing
WASHINGTON – Massachusetts Sen. Elizabeth Warren may score political points with the far left-wing of her party by vowing to rein in the ills of the private equity industry, but her proposals came under fire at a recent House Financial Services Committee.
Warren’s Stop Wall Street Looting Act of 2019 (H.R. 3848), inspired bipartisan push back during a Nov. 19 hearing, and at least one witness raised concerns that the measure could cause “serious harm” to small- and medium-sized businesses’ access to capital.
What was surprising was the degree of push-back the bill, one of a number of pieces of legislation discussed during the hearing, received.
Warren’s proposal would require private equity funds to share liability, prohibit capital distributions for two years after buyouts, and mandate new disclosure regulations.
It was supported at the hearing by Eileen Appelbaum, co-director of the Center for Economic and Policy Research.
She said the liability provisions of the bill would prevent the “reckless loading of debt onto companies.”
But Brett Palmer, president of the Small Business Investor Alliance, warned Warren’s proposal would unintentionally cause serious harm to small businesses’ access to capital while also reducing the funds private equity firms use to invest in small- and medium-sized companies.
Palmer went on to say that Warren’s bill is based on an “incorrect concept of investing.”
Ranking Member Patrick McHenry, R-N.C., went further, saying Warren’s proposal would erase somewhere between 6.9 million and 26.3 million jobs and threaten the pensions of millions of Americans.
He said he based his numbers on a recent report from the U.S. Chamber of Commerce.
Other bills considered by the Financial Services Committee included the Private Fund Board Disclosure Act of 2019, which would require a private fund’s investment advisers to report the board of directors’ race, ethnicity and gender composition to the Securities and Exchange Commission, and the SEC to make the report public; and Investment Adviser Alignment Act, which would define “private equity adviser” in addition to requiring certain report filings and impose a fiduciary duty on private equity funds.
Wayne Moore, trustee of the Los Angeles County Employee Retirement Association, told the lawmakers that more disclosure of private equity fees and expenses will help public pension fund investors.
“My fiduciary duties include making sure we get what we pay for,” Moore said. “Private equity is one of our best performing assets, but it is also our most costly asset.”
He later added “information is critical, and we lack the information we need.”
Drew Maloney, president and CEO of the American Investment Council, which advocates for the private equity industry, said 91% of public pension funds have private equity investments that in 2018 generated the strongest return of any asset class over the last 10 years.
“These strong returns have become increasingly critical for pension funds at a time when many do not have enough money to meet their existing obligations,” he said.
This statement inspired a flurry of support from Republicans on the panel.
Rep. Roger Williams, a Texas Republican, read a quote from the chairman of the Houston Firefighters’ Relief and Retirement Fund, who said “private equity opportunities far exceed those available in stock market investing for the foreseeable future.”
A number of his colleagues focused on how private equity investments have created rather than destroyed jobs. Among these was Rep. Ann Wagner, R-Mo., who said more than 47,000 of her constituents worked at private equity-backed businesses.
And Rep. Denver Riggleman, R-Va., told the committee that he “wouldn’t be here without private equity.”
He went on to relate how thanks to a $90,000 investment from private equity, he and his family were able to grow their small business and hire 20 full time employees after every bank they approached refused to provide capital.
Riggleman warned the committee that Sen. Warren’s proposed legislation would put his company and all of its employees out of business.
Joining the chorus were several Democrats, including Rep. Al Lawson, of Florida, who said “private equity is the best performing asset class for public pensions, and that is true here in Florida.”
Rep. Josh Gottheimer, D-N.J., said the same is true in his state where private equity investments have generated the highest returns of any asset class for the New Jersey Division of Investment.
These returns played a crucial role in supporting the retirement of local firefighters, schoolteachers and police officers, he said.
Rep. Gregory Meeks, D-N.Y., said organized labor and minority-owned firms are partnering directly with private equity to support jobs and generate stronger pension returns on the current redevelopment of Terminal One at JFK Airport, which is located in his district.
Rep. Ben McAdams, D-Utah, then recounted how private equity investments in Utah have played a critical role in expanding early childhood education, lowering recidivism rates, reducing homelessness, and building clean energy projects.
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