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Industry warns AFFE disclosure treatment pushed institutional dollars away from BDCs
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Summary
Witnesses and members discussed how the SEC's acquired fund fees and expenses (AFFE) presentation affected business development companies (BDCs), indexes and institutional investment flows, and urged statutory or administrative fixes.
Several members raised concerns that the SEC’s treatment of acquired fund fees and expenses (AFFE) has distorted the public presentation of BDC fees and led to index exclusion and institutional outflows.
Representative Gabarino and other members cited testimony from Anna Pinedo explaining that the AFFE presentation—required under a 2006 SEC policy—produced an inflated-looking fee table for many BDCs. Pinedo said the change led to BDCs falling out of some indices and to institutional investors moving away from BDCs, reducing capital flows to small and mid-size businesses that BDCs finance.
Pinedo told the subcommittee reversing the AFFE policy and modernizing regulation for BDCs and other regulated funds could restore investor interest and improve capital formation for middle-market companies. Members discussed legislation in prior Congresses aimed at correcting AFFE-related distortions and said they would continue evaluating statutory and SEC options.
No formal action was taken; members requested additional written materials for the record.
