Guest Contributor: What the Alts Industry Can Expect from Washington in 2021
By: Anya Coverman, Senior Vice President of Government Affairs and General Counsel at the Institute for Portfolio Alternatives
By: Anya Coverman, Senior Vice President of Government Affairs and General Counsel at the Institute for Portfolio Alternatives
A central component of our industry’s mission is to create more opportunities for retail investors to effectively balance their portfolios by expanding access to real assets. Making those opportunities a reality has relied on persistent innovation and a decades-long bipartisan advocacy effort to modernize regulations making the benefits of alternative investments more accessible to investors while maintaining important investor protections.
As the incoming presidential administration brings new leadership to Washington, D.C., it’s important that our industry stays focused on a set of key issues.
The historic appointment of Janet Yellen as Treasury Secretary has been well received by many, not only thanks to Yellen’s extensive pedigree, but also as an early indicator of the direction the Biden administration might take to filling other key posts.
As we look ahead to other key appointments – namely at the helm of the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) – the Yellen appointment is a potential foreshadowing of other highly-qualified and pragmatic nominations.
A Biden DOL and SEC Outlook
We expect the Biden DOL to again focus on the definition of fiduciary duty and the standard of care under the Employee Retirement Income Security Act (ERISA).
After seven years of rulemaking, the Obama Administration issued its fiduciary rule in 2016 that was voided by the 5th Circuit Court of Appeals in 2018. The SEC under the Trump Administration enacted the Regulation Best Interest (Reg BI) standard this year and the Trump DOL finalized a complementary rule in mid-December. Unfortunately, the Trump DOL rule will not be effective prior to the inauguration of President-elect Biden. As such, we expect the rule to be suspended by the incoming administration and subsequently revised in the coming years.
As next steps around rulemaking shake out, our industry must continue its work with the Biden administration, the DOL, and the SEC to achieve a workable standard of care for investors and providers of investment products. The industry must remain a vigilant and balanced champion of policies that work to protect investors while providing choice and diverse investment opportunities to meet their goals.
Our industry must also aggressively engage with the next SEC Chair. We anticipate the incoming SEC leadership will review the private market reforms made under Clayton – highlighted by a criticism of private market expansion at the detriment of public markets and the misconception that these types of reforms are responsible for the drop in the number of publicly listed companies and therefore bad for the general investing public.
We also expect an increased focus on environmental, social and governance (ESG) considerations, and it will be critical for the alternative investment industry to play an active role in this conversation.
Tax Policy Hangs in the Balance
The future of tax policy in the 117th Congress depends on the runoff races in Georgia for the two U.S. Senate seats.
If Republican candidates win just one of the two Senate seats, the Biden administration will have a tougher time pushing much of its tax agenda, as they would need 11 votes from Republican members. If – on the other hand – Democrats take both seats and the Senate is split, Biden will be able to advance his tax agenda without a single Republican vote via a tiebreak from Vice President-elect Kamala Harris and the budget reconciliation process, which requires only a simple majority.
Under a split Senate, expect Section 1031 like-kind exchanges for real estate to come under fire. These exchanges are targeted for elimination by the Biden platform to pay for other priorities, and a proactive and coordinated industry response will be necessary to maintain the critical tax provision.
Under either political scenario, a tax bill is possible in the next Congress to deal with expiring provisions in the internal revenue code and to fine tune provisions in the 2017 Tax Cuts and Jobs Act.
From our industry’s point of view, this could have implications for the 1980 Foreign Investment in Real Property Tax Act – as there is the potential for a provision amending the law in its current form to create parity in the tax treatment between exchange-traded REITs and publicly offered non-traded REITs.
We also need to engage with Congress and the Biden Administration on possible changes to opportunity zones to improve reporting and deal with changes from the 2020 census.
Pandemic Policy Priorities in 1H 2021
Finally, there are a range of key issues related to the pandemic that will be top-of-mind as new officials take office in 2021.
First and foremost, we need policies that help facilitate a safe return to the workplace and stimulate economic recovery. Treasury Secretary nominee Yellen has echoed Federal Reserve Chairman Jay Powell’s sentiment on the urgent need for a second round of broad stimulus.
In our conversations with several returning and newly elected members of Congress recently, we’ve emphasized the need for a comprehensive plan to return to work – including thoughtful science-based safety measures for workers and liability protections for employers.
As we look ahead, one thing will assuredly remain the same: Policy doesn’t happen by chance. As the new administration takes shape and new lawmakers arrive in Washington to work together to recover from COVID-19 in 2021, our industry’s active role in bipartisan advocacy efforts will be of utmost importance.
Anya Coverman is senior vice president of government affairs and general counsel at Institute for Portfolio Alternatives where she leads all public policy and advocacy efforts.
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The views and opinions expressed in the preceding article are those of the author and do not necessarily reflect the views of The DI Wire.
