How this impacts your fund

by David Gerogosian, Executive Vice President, PEF Services

David Gerogosian at PEF Services

On Thursday, June 22, 2017, SBA released for public comment, the long-awaited revisions to its Management Fee Policy.  This TechNote, once finalized, will impact all leveraged SBIC funds.  We want to emphasize the importance of your review of this document, how it may affect your Management Fee, and what expenses may be paid directly by or allocated to leveraged SBIC funds.

The link to the cover letter and the draft TechNote can be accessed through these links:

While the changes are significant, we will be working closely with SBIA to prepare comments to several changes that we want to be sure are further clarified by SBA prior to this being implemented and we encourage you to submit your comments as well directly to Will Gardner at SBIA (wgardner@sbia.org).  Comments are due no later than August 4, 2017.

For all of our clients, the key change is that the definition of expenses that SBA will consider to be ‘Management Fee expense’ will change.  However, as stated in the cover letter in footnote 2, for existing SBIC funds, SBA has determined that the language within each Limited Partnership Agreement (“LPA”), which was approved by SBA, will “control” in the event of a conflict with the new policies identified in TechNote 7b.

You should review your LPA in conjunction with legal counsel to determine the impact on current and prospective expenses that can be charged to your SBIC fund.

This affects not only third party expenses, such as PEF’s fund administration fees, but also expenses related to investment related activities, specifically what we call “dead deal” expenses.

PEF is committed to working closely with each of our clients, our clients’ legal counsel and the SBIA to ensure that these changes, once implemented are applied consistently across all funds.