BDC Bill Advances in the House, Companion Legislation Introduced in the Senate
Legislation Aims to Fix Unintended Consequences of Fee Disclosure Rule for Business Development Companies
WASHINGTON, DC (May 20, 2025) – The House Committee on Financial Services today passed the Access to Small Business Investor Capital Act, an important measure that will correct a misleading disclosure requirement that overstates the actual costs of investment in Business Development Companies (BDCs). Sponsored by U.S. Representatives Brad Sherman (D-CA), Bill Huizenga (R-MI), Janelle Bynum (D-OR), and Andrew Garbarino (R-NY), the bill will exempt funds that invest in BDCs from including the acquired fund fees and expenses (AFFE) calculation in the prospectus fee table. The legislation passed unanimously out of committee and will now proceed to the House floor. A companion bill was also introduced today in the Senate by U.S. Senators Dave McCormick (R-PA) and Angela Alsobrooks (D-MD).
“Exempting BDCs from the AFFE rule is necessary to incentivize institutional investment back into BDCs,” said SBIA President Brett Palmer. “We applaud the committee for recognizing the importance of ensuring investors receive the most accurate financial information, and we thank Representatives Sherman, Huizenga, Bynum and Garbarino for their leadership in championing this vital reform.”
BDCs are a critical source of capital for middle market companies across the country and are mandated by law to invest at least 70% of their assets in private and small-cap American businesses; however, that number is often closer to 95%. BDCs also provide retail investors with opportunities to participate in the growth and success of these businesses while growing their retirement funds. SBIA looks forward to collaborating with lawmakers and industry stakeholders to advance this legislation.
Read SBIA's letter of support >
Read Sen. Alsobrook’s press release >
Background on AFFE
- Given the capital and personnel-intensive nature of actively sourcing and managing a portfolio of smaller private investments, BDC operating expenses are naturally higher than, for example, passive index funds. However, these expenses are already reflected in a BDC’s quarterly reported net asset value (NAV) and thus ultimately reflected in its trading price.
- Requiring funds to report BDC expenses again under the current AFFE disclosure requirements results in a double counting of BDC expenses that artificially inflates acquiring fund expense ratios.
- Between 2006 and 2014, the BDC industry experienced dramatic growth, magnifying the impact of the AFFE rule. As a result, the MSCI, Russell and S&P indices removed BDCs from their indices in 2014, which precipitated a 25 percent decrease in institutional investment (primarily by index funds) in BDCs. Between 2014 and 2018 there was another 13 percent drop in institutional investors in the BDC space.
- Several unintended consequences of the current AFFE disclosure requirements for acquiring funds have proven harmful to retail investors: fewer analysts cover BDCs, reducing publicly available information for retail investors; reduced institutional ownership of BDCs denies retail investors the benefit of corporate governance oversight provided by sophisticated institutional investors; and, finally, reduced trading volume and liquidity of BDC shares increases the cost of capital for middle market businesses.
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About the Small Business Investor Alliance
The Small Business Investor Alliance (SBIA) is the national association representing Business Development Companies (BDCs) and 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 65 years. For more information, visit www.SBIA.org or call (202) 628-5055.
