SEC Allows BDC to Purchase Securities in Related Investment Adviser
The staff of the Division of Investment Management granted no-action relief allowing a business development company to own an equity interest in an affiliated investment adviser. The BDC wanted to use such a structure so that the parent company BDC could assign a third party sub-advisory agreement to the non-BDC subsidiary. Without assigning the agreement, the revenue received by the parent company BDC would not qualify under Subchapter M as “good income” for RIC purposes. The staff granted the no-action relief because the structure did not risk some of the liability and conflicts of interest concerns that were the basis for the prohibition in Section 12(d)(3) from purchasing securities of securities-related issuers.
OUR TAKE: This no action letter is an important development in the BDC world. It also may have analogous application to private equity funds.