By SBIA | February 28, 2020
On February 28, Brett Palmer, President, Small Business Investor Alliance (SBIA); Nelson Griggs, Executive Vice President, NASDAQ; Tom Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce; Jason Mulvihill, Chief Operating Officer & General Counsel, American Investment Council (AIC); and Tony Chereso, President and CEO, Institute for Portfolio Alternatives (IPA) sent a joint letter to Jay Clayton, Chairman, U.S. Securities and Exchange Commission, in support of exempting BDCs from the SEC’s 2006 acquired fund fees and expenses (“AFFE”) requirement. Additionally, SBIA is working closely with Rep. Steve Stivers and other leaders on the House Financial Services Committee to send a bipartisan letter next week requesting that the SEC move forward with an exemption.
While the SEC has occasionally considered adopting such an exemption, the group pointed out that “the ongoing disruption of the BDC market caused by the AFFE requirement – and the harm that inflicts upon BDC shareholders – justifies the need for prompt action”. The SEC using its existing authority to implement an exemption for BDCs from the AFFE requirement has long had the support of a broad spectrum of market participants, members of Congress, and others who have weighed in with the Commission on this critical issue.
The AFFE requirement adopted by the SEC in 2006 was intended to help investors better understand the scope of expenses in registered funds that invest in other funds. However, in practice the AFFE requirement has had the effect of overstating the expenses of mutual funds and other registered funds that invest in BDCs. This has resulted in major index providers dropping BDCs from their indices and a decline of institutional ownership in BDCs.
SBIA will continue to engage policymakers and the SEC on AFFE until the issue is fully resolved.