Expanding Investment in Small Businesses Act

Mr. Speaker, I thank my colleague from Kentucky.

Mr. Speaker, I rise to support my bill today, the Expanding Investment in Small Business Act.

Small businesses and entrepreneurs are vital to our economy. More than 60 percent of new jobs are created by small businesses, and almost half of our private-sector workforce is employed by firms with fewer than 500 employees.

Small businesses are also an engine for innovation. According to the Small Business Administration, small businesses account for an outsized percentage of patents granted in the most innovative industries.

I see this ingenuity in Wisconsin in Racine, Janesville, Kenosha, and everywhere in-between. Entrepreneurs and startups create good-paying jobs for workers.

It is important that we continue giving job creators the ability to invest in our communities. But in order to grow, hire, and invest in innovation, small businesses need access to capital.

Unfortunately, rules and regulations have made it harder for companies to gain access to capital, made it harder for them to go public, and made it harder for them to stay public. This hurts small companies, and this hurts the broader economy.

In particular, this hurts American workers and their retirement security. Just under half of all households are invested in mutual funds. Many Americans are invested in these funds through 401(k)'s and pension plans. Their retirement security depends upon the ability to invest in a diverse set of growing, innovative companies.

Our rules, though, are burdensome. They shrink the number of publicly traded companies, either by deterring companies from going public or by encouraging them to stay private. In doing so, they limit the opportunities for Americans saving for retirement.

Members of both parties and a wide range of stakeholders and experts have identified the existing mutual fund rules as an area for potential improvement. I thank my colleague, Congressman Gonzalez from Texas, for joining me in this across-the-aisle effort to support this bill.

This isn't a new idea, but until now, it hasn't gotten done. I am glad to see bipartisan support for taking this important step forward to improving our capital markets.

The Expanding Investment in Small Business Act directs the SEC to consider whether existing mutual fund rules make it harder for small and emerging companies to raise money, so they can grow and invest.

Under the Investment Company Act, a diversified mutual fund may not own more than 10 percent of an issuer's outstanding securities. As mutual funds have grown both in number and in size, they become an important source of

capital, in particular for small businesses.

A substantial mutual fund investment in a small-cap company can easily exceed the 10 percent cap. This likely deters mutual fund investments into growing and innovative companies.

My bill asks the SEC to consider four key items: one, how many mutual funds are currently affected by the 10 percent cap; two, how the investing preferences of diversified mutual funds have shifted over time with respect to smaller companies; three, the potential impact of a change in the 10 percent threshold; and, four, the ability of diversified funds to manage liquidity risk.

This information is necessary so that we can continue to work in a nonpartisan manner to ensure that small businesses have access to capital, so they can grow and invest.

Smart, targeted reforms can give us more vibrant capital markets; growing, innovative small businesses; better outcomes for American investors; and, ultimately, a stronger economy.

I look forward to continuing to work with my colleagues toward this goal. I thank Chair Waters and Ranking Member McHenry for their support of this bill, and I urge my colleagues to support its passage.

This bill is an important step forward toward a stronger economy, more dynamic small businesses, and more jobs for American workers.

Mr. Speaker, on that I demand the yeas and nays.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise in strong support of H.R. 3050, the Expanding Investment in Small Business Act.

I commend my colleague, an outstanding new member of the Financial Services Committee, Congressman Steil from Wisconsin, for his hard work on this important bill that will help us make our capital markets stronger and more attractive. Because of his personal experience and his background in public markets as a counsel for a publicly traded company, he has brought to bear particular expertise in forwarding this legislation for our consideration.

Mutual funds have historically played an important role in providing liquidity to newly public companies. Since 1990, the total number of registered mutual funds has grown approximately 10 times; mean fund size has more than doubled; and open-end fund holdings of U.S. corporate equities have reached approximately 24 percent of the entire market. This growth means the investment decisions of mutual funds today are an important aspect of our public capital markets.

As the size of mutual funds has increased in recent years, the diversified fund limit rules, specifically the 10 percent cap on a diversified fund's ownership of an issuer's outstanding shares, have limited funds' ability to take meaningful positions in small-cap companies, according to industry experts.

The current 10 percent cap on mutual fund positions limits interest in small-cap IPOs because as large funds' assets under management grow, the 10 percent cap means that any investment in a small IPO will have a negligible impact on overall fund return.

Declining mutual fund interest in small IPOs also materially weakens the trading environment for small-cap stocks and likely deters small, private firms from joining our public markets, something we should not be discouraging.

H.R. 3050 would require the SEC to study whether the current diversified fund limit threshold for mutual funds to 10 percent constrains their ability to take meaningful positions in small-cap companies.

As part of its report, the SEC shall recommend to Congress any statutory changes that should be undertaken to address the SEC's findings.

This is an important bill for helping us make our capital markets as attractive as possible, especially for smaller companies.

For these reasons, I support H.R. 3050. I commend my colleague, the gentleman from Wisconsin, for his leadership and his experience on this issue, and I urge my colleagues to support this bill.

I reserve the balance of my time.

Mr. Speaker, I yield such time as he may consume to the gentleman from Wisconsin (Mr. Steil), the author of this legislation.

Mr. Speaker, I yield 2 minutes to the gentleman from Virginia (Mr. Riggleman), who is an outstanding new member of the House Financial Services Committee. He is another gentleman who comes to Congress not as a politician, but as an entrepreneur, someone who has built businesses and created jobs himself and understands intimately the need for small businesses and entrepreneurs to have the ability to access capital.

Mr. Speaker, I urge my colleagues to support the legislation, and I yield back the balance of my time.

Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 3050) to require the Securities and Exchange Commission to carry out a study of the 10 per centum threshold limitation applicable to the definition of a diversified company under the Investment Company Act of 1940, and for other purposes, as amended.

Mr. Speaker, I ask unanimous consent that all Members have 5 legislative days to revise and extend their remarks on this legislation and to insert extraneous material thereon.

Mr. Speaker, I yield myself such time as I may consume.

Our capital markets are the envy of the world. This is due, in part, to the fact that once a company goes public, it can efficiently raise money for mom-and-pop investors who, in turn, can easily buy and sell shares.

However, there is some evidence that initial public offerings, or IPOs, of smaller companies, known as microcap companies, have declined since the dot-com bubble in 2001. This decline accounts for the main reason that the total number of stocks has declined.

I think it is important that we look into why this is the case and find out what policies we should be working on in Congress to ensure that our Nation's small businesses are able to access the public markets.

I support the gentleman from Wisconsin's bill, the Expanding Investment in Small Business Act of 2019, for doing just that. This bill would require the Securities and Exchange Commission to study and solicit public comment on the existing rules restricting a diversified mutual fund's exposure to a single company. It would also require the SEC to determine whether that requirement limits capital formation considering current investing trends and other factors the SEC determines are necessary and appropriate to protect investors.

The SEC would have to issue a report to Congress with its findings and determinations made in carrying out the study and any legislative recommendations, including any recommendation to update the current thresholds.

This bill helps ensure that we have the facts and data necessary to make an informed decision on whether we should change the current diversification limits for mutual funds and whether doing so will provide additional investment in small company IPOs.

I thank Representative Steil for working with me this Congress to ensure that the revised text of the bill also seeks to promote competition in our capital markets, and Mr. Gonzalez for cosponsoring this bill.

I urge all Members to vote ``yes,'' and I reserve the balance of my time.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I have no further speakers, and I reserve the balance of my time.

Mr. Speaker, I yield myself the balance of my time. I want to, again, thank the sponsors of H.R. 3050 and the gentleman from Wisconsin for working with my side on the text of this legislation. I think it is a good bill and will, along with other measures that we are considering today, improve the access of small businesses to U.S. capital markets.

Mr. Speaker, I urge my colleagues to join me in supporting this important piece of legislation, and I yield back the balance of my time.

Mr. Speaker, I have to support my good friend from Wisconsin as we go forward. I am also in a very small business type of atmosphere in Virginia. I own a small business, a distillery, and for us, small businesses are one of the most important things we can support as we go forward.

I am here today to support my colleagues and to support Democrats in a bipartisan fashion. This is something that we need to do, we have to do, and I urge my colleagues to support this bill.

Mr. Speaker, I don't need the 2 minutes to actually make sure that this happens. I urge my colleagues to support this bill and make sure we support small businesses in everything that we do.

Speaker, I rise today to include in Record how I would have voted on H.R. 2515, H.R. 3050, and H.R. 2409. I was unable to vote yesterday because my scheduled flight was cancelled. Had I been present, I would have voted ``yea'' for each bill.