WASHINGTON, D.C. (December 4, 2020) — On December 4, the Small Business Investor Alliance (SBIA) submitted a letter to the Securities and Exchange Commission (SEC) regarding the agency’s proposed amendments to rules that require an open-end management investment company to disclose “acquired fund fees and expenses” (AFFE). We applaud the SEC for taking into account many of the BDC industry’s concerns in formulating the proposed amendments to the AFFE Rule; however, the most severe unintended consequence of the AFFE Rule has been the removal and continued exclusion of BDCs from the indices. In response to the request for comments, the SBIA has made the following recommendations:.
- The SEC should move the AFFE line item out of the fee table to a footnote or to a narrative discussion accompanying the fee table and should amend the AFFE disclosure requirements in Form N-2 for BDCs in the same manner.
- The SEC should move the AFFE line item out of the fee table to a footnote or to a narrative discussion accompanying the fee table and should amend the AFFE disclosure requirements in Form N-2 for BDCs in the same manner.• In the alternative, the SEC should exempt BDCs from the definition of Acquired Fund under Forms N-1A, N-2, N-3, N-4 and N-6 (the “Forms”).
These recommended changes to the proposed amendments would advance the SEC’s objectives of providing investors with (a) “a better understanding of the actual costs of investing in a fund that invests in other funds” and (b) “the means to compare directly the costs of investing in alternative funds of funds, or the costs of investing in a fund of funds to a more traditional fund”, while addressing the unique harm suffered by BDCs when providers of broad-market indices exclude BDCs solely because of the disproportionate impact of the AFFE Rule on the expense ratio disclosed in the prospectus fee tables.
About the Small Business Investor Alliance (SBIA)
The Small Business Investor Alliance (SBIA) is the premier organization of lower middle market private equity funds and investors. SBIA works on behalf of its members as a tireless advocate for policies that promote competitive markets and robust domestic investment for growing small businesses. SBIA has been playing a pivotal role in promoting the growth and vitality of the private equity industry for over 60 years. For more information, visit www.SBIA.org or call (202) 628-5055.