Funds that acquire BDCs are currently required to provide a disclosure that inaccurately portrays the true costs of investing in BDCs. This disclosure essentially results in “double counting” the actual cost to shareholders of investing in BDCs.

• Because of this, the stock market indexes decided to remove BDCs, which led to an outflow of investment by institutional investors. The result has been less capital available for middle market businesses throughout the country.
• While the SEC proposed a rule to address this issue in August 2020, the SEC proposal does not ensure BDCs are re-included in the indexes. SBIA seeks a full exemption from the AFFE requirement for BDCs either through regulatory or legislative action.

Level the playing field to allow BDC investors the same 20 percent deduction on Qualified Business Income that REITs and S-Corp banks received in the 2017 Tax Cuts and Jobs Act because this direct fiscal stimulus would encourage investment in middle market companies where they need it most.

SBIA supports expanding the criteria to determine when an individual is an "accredited investor" under SEC regulation. Individuals would be permitted to invest a certain amount of their net worth in nontraditional investments, and individuals who receive personalized advice from a financial professional would be allowed to do the same.

Joint transactions where a BDC and affiliated funds co-invest have become common in the industry as BDCs are frequently externally managed on a platform with private funds following a similar strategy. These platforms provide significant benefits to the BDC and its investors, including access to greater deal flow and broader investment diversification.

• Joint transactions are currently governed by a patchwork of no-action letters and exemptive relief orders. This patchwork, which was developed in part to address the specific considerations relevant to various BDC issuers, has created not only an uneven playing field in terms of investment capabilities, but also is restricting the flow of capital to portfolio companies.
• In April 2020, the SEC recognized the value of co-investment transactions and granted temporary exemptions in the wake of the coronavirus pandemic and extended the exemption in January 2021. SBIA continues to support the SEC permanently exempting BDC co-investment transactions rather than the current framework.