New Bill Would Require Private Fund Disclosures for Chinese Investments

Senators from both parties introduced the Disclosing Investments in Foreign Adversaries Act last week. The bill would require private funds and their advisers to disclose investments in “countries of concern,” specifying China, Iran, North Korea and Russia.

Senators Bob Casey, D-Pennsylvania, and Rick Scott, R-Florida, are the original sponsors of the bill. Both senators expressed concern that Americans’ retirement savings are being invested in China and other countries seen as adversaries: “Currently, private equity, hedge funds, and venture capital firms can invest Americans’ savings and pensions in China without the American people’s knowledge,” stated a release from the senators.

Scott also expressed concern about the portfolios of other institutional investors: “Without the ability for the U.S. public to monitor investments made by large private equity and venture capital funds in foreign economies, American states, municipalities, universities, unions, and pension funds could unknowingly be investing in the United States’ economic competitors like China and Russia.”

If passed, the bill would require private funds such as hedge, private equity and venture capital funds to disclose annually their holdings in these countries. Advisers to those funds would have to do the same on forms PF and ADV. The disclosures would need to include the percent of that fund’s assets held in countries of concern, the entities in which the funds are invested and the purpose of those investments.

The Securities and Exchange Commission would be required to use those specific disclosures to issue public summaries of those investments on an annual basis.

Though the bill targets four countries, it is one of many specifically intended to curtail investment in China, especially in industries considered critical to U.S. national security, and is framed as such by its sponsors.

Scott, for his part, has introduced at least two other bills requiring special disclosures related to Chinese investment. The Transaction and Sourcing Knowledge Act, introduced in March, would require public firms to disclose any business dealings in Xinjiang Province and any transactions with restricted Chinese companies. The Simply Automatic Filing Extensions Act, also introduced in March, would require public companies to disclose any financial support they receive from China and any positions held currently or previously by their directors with the Chinese government or Chinese Communist Party.

The administration of President Joe Biden has also tightened restrictions this year on investing or doing business with several of the same countries as the bill targets. Early in November, the Department of the Treasury increased sanctions on individuals and organizations providing Russia with technology and equipment from third countries that aid the Russian military.”