Wagner Delivers Opening Statement at Capital Markets Subcommittee Hearing on Reforming the Accredited Investor Definition
Washington,
February 8, 2023 -
Today, the House Financial Services Subcommittee on Capital Markets, led by Chairman Ann Wagner (MO-02), is holding its first hearing of the Congress entitled, “Sophistication or Discrimination? How the Accredited Investor Definition Unfairly Limits Investment Access for the Non-wealthy and the Need for Reform.”
Watch Chairman Wagner’s opening remarks here.
Read Chairman Wagner’s opening remarks as prepared for delivery:
“Good morning and thank you all for joining us at today’s hearing. We’re going to be discussing a topic that matters to millions of Americans – expanding how they are able to invest their hard-earned money for a better future.
“This hearing will examine the ways in which Congress can give main street investors better access to investment opportunities that have been historically available for only the wealthy or highly educated.
“Congress must work to expand opportunities for all investors and entrepreneurs in the securities markets in order to create long-term, sustainable growth within our economy.
“Companies have two options for accessing capital in the securities markets: an initial public offering or a private offering.
“Due to the considerable costs associated with burdensome reporting requirements for public companies, an initial public offering may not be an option for many smaller companies.
“Therefore, a private offering is often a more cost-efficient way for a smaller company to raise capital.
“However, raising funds through a private offering has its own challenges, because the accredited investor definition uses wealth and other limited criteria to determine sophistication, which restricts the pool of potential investors, leaving many companies without access to funding.
“The gap between private and public offerings is substantial. From July 2021 to June 2022, the amount of capital raised with private offerings reached a staggering $4.5 trillion.
“During that same period, only $126 billion dollars were raised in IPOs. To put this into context, that’s only 3% of what our private markets raised.
This gap highlights the enormity of investment opportunities within the private markets primarily accessible to only wealthy accredited investors and rarely available to retail investors.
“To increase investment opportunities for all Americans and help entrepreneurs raise more funds, we must broaden the pool of investors in our private markets.
“As SEC Commissioner Peirce noted, 'A person’s economic status may demonstrate an ability to withstand losses, but it certainly does not demonstrate financial sophistication.'
“'The result of pretending that wealth is a good measure of sophistication is a standard that discriminates against financially sophisticated, lower- income and net worth Americans. These Americans cannot use their experience, local knowledge, education, and investing acumen to build a balanced investment portfolio, to maximize the nest eggs they pass on to their children, or to invest in their own communities.'
“To that I say – Amen! Congress must modernize the outdated accredited investor definition and expand the number of individuals who qualify as accredited investors to open up more funding opportunities for all entrepreneurs.
“Additionally, we must expand access to investment opportunities for retail investors through closed-end funds, whose shares trade on the open market and have some similar traits with ETFs and mutual funds.
“Approximately three million retail investors rely on closed-end funds as a source of retirement savings and investment opportunities, but the SEC currently limits their investment in private securities to just 15 percent of the fund's net assets.
“We should allow publicly offered closed-end funds to invest all their assets in private securities to increase retail investor exposure to private markets while maintaining investor protections.
“Finally, we must provide equity compensation for gig workers, who make up over a quarter of the U.S. workforce and play a vital role in our 21st century economy.
“These workers deserve the same opportunities for financial stability and growth as traditional employees.
“Expanding opportunities for all investors and entrepreneurs is not just a moral imperative, but it is also essential for the growth and prosperity of our economy. Thank you and I look forward to our discussion on this critical issue.”
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