[Congressional Record Volume 171, Number 107 (Monday, June 23, 2025)]
[House]
[Pages H2868-H2869]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
ACCESS TO SMALL BUSINESS INVESTOR CAPITAL ACT
Mrs. WAGNER. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 2225) to permit a registered investment company to omit
certain fees from the calculation of Acquired Fund Fees and Expenses,
and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2225
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Access to Small Business
Investor Capital Act''.
SEC. 2. AMENDMENTS TO ACQUIRED FUND FEES AND EXPENSES
REPORTING ON INVESTMENT COMPANY REGISTRATION
STATEMENTS.
(a) Definitions.--For purposes of this section:
(1) Acquired fund.--The term ``Acquired Fund'' has the
meaning given the term in Forms N-1A, N-2, and N-3.
(2) Acquired fund fees and expenses.--The term ``Acquired
Fund Fees and Expenses'' means the Acquired Fund Fees and
Expenses sub-caption in the Fee Table Disclosure.
(3) Business development company.--The term ``business
development company'' has the meaning given the term in
section 2(a) of the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)).
(4) Fee table disclosure.--The term ``Fee Table
Disclosure'' means the fee table described in Item 3 of Form
N-1A, Item 3 of Form N-2, or Item 4 of Form N-3 (as
applicable, and with respect to each, in any successor fee
table disclosure that the Securities and Exchange Commission
adopts).
(5) Form n-1a.--The term ``Form N-1A'' means the form
described in section 274.11A of title 17, Code of Federal
Regulations, or any successor regulation.
(6) Form n-2.--The term ``Form N-2'' means the form
described in section 274.11a-1 of title 17, Code of Federal
Regulations, or any successor regulation.
(7) Form n-3.--The term ``Form N-3'' means the form
described in section 274.11b of title 17, Code of Federal
Regulations, or any successor regulation.
(8) Registered investment company.--The term ``registered
investment company'' means an investment company, as defined
under section 3(a) of the Investment Company Act of 1940,
registered with the Securities and Exchange Commission under
such Act.
(b) Excluding Business Development Companies From Acquired
Fund Fees and Expenses.--A registered investment company may,
on any investment company registration statement filed
pursuant to section 8(b) of the Investment Company Act of
1940 (15 U.S.C. 80a-8(b)), omit from the calculation of
Acquired Fund Fees and Expenses those fees and expenses that
the investment company incurred indirectly as a result of
investment in shares of one or more Acquired Funds that is a
business development company.
The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from
Missouri (Mrs. Wagner) and the gentleman from California (Mr. Sherman)
each will control 20 minutes.
The Chair recognizes the gentlewoman from Missouri.
General Leave
Mrs. WAGNER. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days in which to revise and extend their remarks
and include extraneous material on the bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from Missouri?
There was no objection.
Mrs. WAGNER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise today in support of H.R. 2225, the Access to
Small Business Investor Capital Act. I thank Congressman Sherman and
the bipartisan cosponsors for their work on this bill.
This is a narrowly tailored fix to a longstanding problem that is
hurting business development companies, or BDCs, which Congress
originally created to help small and midsized businesses access
capital.
{time} 1630
Mr. Speaker, unfortunately, the SEC rule called Acquired Fund Fees
and Expenses, or AFFE, requires funds that invest in BDCs to count the
BDC internal expenses as part of their own expense ratio. The result is
a higher reported cost, even though those fees aren't actually paid by
the investor.
This has led many funds to avoid BDCs altogether, and it has kept
BDCs out of key investment indexes. That means fewer dollars flowing to
small businesses on Main Street.
H.R. 2225 fixes this. It allows funds to exclude expenses related to
BDCs from their AFFE calculation, while still disclosing their
investment in BDCs. This improves both accuracy and transparency. This
is a smart and bipartisan solution that removes an intended barrier to
capital formation without reducing investor protections.
Mr. Speaker, I urge my colleagues to support the bill, and I reserve
the balance of my time.
Mr. SHERMAN. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, at the outset, I thank the chair and the ranking member
for getting us to this stage on this bill.
I also thank the cosponsors of this bill. Just from the committee, we
have some 13 Democrats and 8 Republican members of the Financial
Services Committee to cosponsor this bill. I especially thank the
original cosponsors, Mr. Huizenga, Mr. Garbarino, and Ms. Bynum, for
their efforts in bringing us to this point.
Mr. Speaker, this is a bipartisan bill. Like all of the most
fascinating bills that come to the floor of the House, it deals with
accounting. Like the most important bills that come to the floor of the
House, it deals with accounting. In this case, it deals with accounting
for the expense ratios of mutual funds.
This bipartisan bill, H.R. 2225, the Access to Small Business
Investor Capital Act, makes a narrow technical correction of the
Federal securities rules that had a major unintended consequence over
the last two decades.
In 1980, Congress created Business Development Companies to
facilitate capital formation and get that capital to small- and medium-
sized businesses. I want to point out that, as we have had tighter and
tighter bank regulations, banks have been reluctant to lend money to
small businesses except where their risks are guaranteed by the Small
Business Administration. SBA loans are, of course, limited.
We need BDCs to provide investment and to provide management
assistance to growing businesses that are often underserved by
traditional lending institutions.
By law, a BDC must invest at least 70 percent of their assets in
small- and medium-sized domestic companies.
[[Page H2869]]
Over time, BDCs have filled that critical gap in our capital markets by
funding businesses and industries in geographies often overlooked by
other financial institutions. BDCs are often the first institutional
investors to step in.
This bill will play an important role in getting BDCs the capital
that they then put into small- and medium-sized businesses.
Calculations are that $120 billion more will be available to invest by
BDCs because we expect a 30 percent increase in total investment. That
is because this bill opens the door to mutual fund investments in BDCs.
Despite the success of BDCs, in 2006, the SEC adopted a rule that
inadvertently discouraged capital flows into BDCs, constraining their
ability to serve small business. The rule is part of SEC's Acquired
Fund Fees and Expenses framework. AFFE requires mutual funds and other
investment vehicles that invest in BDCs to disclose as management fees
of the mutual fund the expenses and the overhead of the BDC. This is in
radical opposition to how similar investments are treated.
If a mutual fund invests in the bank, the mutual fund, of course,
lists as an expense of the mutual fund the expenses of the mutual fund.
It does not list the overhead of the bank as if that is an expense of
running the mutual fund.
Banks and BDCs are two of the major types of institutions that make
business investments and business loans. The double counting of BDCs by
counting those as expenses of the mutual funds simply makes it
impossible for mutual funds to invest in BDCs.
The SEC rule artificially inflates the expense ratios of those mutual
funds that are used to invest in BDCs, and so many of them don't. The
result is misleading. Investors see a fund's expenses as higher than
they actually are simply because the fund decides to invest in BDCs.
This perception has led many fund managers to exclude BDCs from their
portfolio, not because of performance but because of this distorted
regulatory accounting.
The intent of this rule to provide transparency was well-meaning. The
execution, when applied to BDCs, has been counterproductive.
Research by U.S. and international financial professors shows that
after BDCs were removed from major U.S. stock indexes, as a consequence
of this misguided AFFE rule, BDCs experienced a 29 percent to 33
percent lower investment growth as compared to similar potential
investments.
The effects were not limited to the financial sector. Companies that
rely on BDCs saw lower job creation with employment falling by between
1.5 to 6.5 percentage points compared to pre-exclusion levels.
The rule also fails to recognize the unique structure and mission of
BDCs. Unlike passive funds, BDCs are actively managed and intentionally
incur higher costs in order to provide tailored investment and advisory
services to the small businesses that they invest in.
This model creates long-term value, but the AFFE rule unfairly
penalizes it. This is, of course, a departure. The rule is inconsistent
with the way the AFFE rule applies to mutual fund investments in rates
and, more importantly, the way it applies to mutual fund investments in
banks.
Because of this rule's miscounting, BDCs were removed from several
stock indexes, as I pointed out earlier. If the SEC had the benefit of
hindsight, I think it is unlikely that they would have adopted this
rule, which contradicts the rule that they have for investments in
banks and rates. That is why Congress needs to reverse this.
The Access to Small Business Investor Capital Act fixes this by
allowing BDCs' acquired fund fees and expenses from disclosures, while
maintaining transparency around the BDC management fees and costs. This
restores fairness and aligns the regulatory disclosures with economic
reality and gives investors a clear view of their actual costs.
Importantly, it does so without rolling back investor protections or
weakening SEC oversight.
Mr. Speaker, I would point out that this bill will provide $120
billion of capital to our small- and medium-sized businesses without a
penny of cost to the American taxpayer and without any risk to the
American taxpayer.
This bipartisan legislation will open the door to more investment in
BDCs, thereby unlocking capital for small- and medium-sized businesses.
The most important thing that our financial institutions and the most
important thing that our capital markets can do is provide capital for
growing American enterprise, particularly small- and medium-sized
businesses.
Business Development Companies play a vital role, and I am proud to
work with a bipartisan group of Members. As I pointed out earlier, we
have a substantial number of cosponsors, 25 in all, including 13
Democrats on the Committee.
We have seen bipartisan support for this bill, not only in this
Congress but in prior Congresses. This is the Congress in which we
actually have to get it adopted. The bipartisan legislation will open
more investments and unlock capital for small businesses, as I have
said.
Mr. Speaker, I urge my colleagues to support this bill, and I reserve
the balance of my time.
Mrs. WAGNER. Mr. Speaker, I reserve the balance of my time.
Mr. SHERMAN. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, I want to point out that I think this is the best thing
that Congress can do without risk or cost to the American taxpayer. It
makes sure that small- and medium-sized businesses have access to
capital.
With the BDC methodology, BDCs not only provide the capital but also
provide the advice that so many growing businesses need.
Mr. Speaker, I thank the original cosponsors that I mentioned earlier
and all the cosponsors of this bill. I once again thank the chair and
the ranking member for getting us to this point.
Mr. Speaker, I urge my colleagues to support this bill, and I yield
back the balance of my time.
Mrs. WAGNER. Mr. Speaker, in closing, this is a smart and bipartisan
solution that removes an unintended barrier to capital formation
without reducing investor protections.
Mr. Speaker, I urge my colleagues to support H.R. 2225, and I yield
back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentlewoman from Missouri (Mrs. Wagner) that the House suspend the
rules and pass the bill, H.R. 2225, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
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