The US Securities and Exchange Commission’s Division of Investment Management issued a guidance update on how business development companies (BDCs) with wholly owned subsidiaries should present their financial statements.
The SEC advises BDCs with wholly owned subsidiaries to consolidate documents for their subsidiaries in the registration statement and financial statement review process in order to provide investors with “the most meaningful financial presentation of those statements,” according to the SEC report. This is opposed to attaching the subsidiary’s financial information to the BDC’s statement as a separate document.
In the update, the SEC notes that it has seen statements from BDCs that do not consolidate such subsidiaries, even though the purpose of the subsidiary is to act as an extension of the BDC’s investment operations and facilitate the execution of its strategy. The aim of the guidance update is to remove this confusion and make the investor’s review process easier and more efficient.
In the same update, the SEC advises that, conversely, registered investment companies, not to be confused with registered investment advisors, that serve as fund of funds or feeder funds in a master-feeder structure should keep their financial statements unconsolidated, attaching the financial information for the underlying fund as a separate document.