Investments in other investment companies (2024)

Section 12(d)(1)(A) of the 1940 Act places the following limits on investments by investment funds in any registered investment company. Specifically, a fund is prohibited from:

  • acquiring more than 3% of a registered investment company’s shares (the “3% Limit”);
  • investing more than 5% of its assets in a single registered investment company (the “5% Limit”); or
  • investing more than 10% of its assets in registered investment companies (the “10% Limit”).

As Sections 3(c)(1) and 3(c)(7) of the 1940 Act (the exemptions relied upon by private funds to avoid registration as investment companies) indicate that companies relying on these exemptions will be considered investment companies for purposes of the 3% Limit but do not mention the 5% Limit or the 10% Limit, it has generally been assumed that only the 3% Limit applies to private funds. This assumption was placed in doubt by the March 2008 proposing release for Rule 12d1-4, which states in footnote 194 that “Both registered and unregistered funds are subject to these limits [i.e., the limits of Section 12(d)(1)(A)] with respect to their investments in a registered fund.” The New York City Bar’s Committee on Private Investment Funds requested clarification of this issue in a comment letter regarding the 2008 proposed rules but, as the rules were never adopted, no such clarification was ever issued by the SEC.

The SEC has indicated on an informal basis that only the 3% Limit would apply to private funds because Sections 3(c)(1) and 3(c)(7) provide that companies relying on these exemptions are only “investment companies” for the purposes of 12(d)(1)(A)(i). Private funds are not otherwise considered investment companies and would therefore not be subject to the 5% Limit and 10% Limit.

Funds with significant positions in registered investment companies should implement policies to ensure that they regularly determine whether they are in compliance with the above limitations.

Investments in other investment companies (2024)


What is investment in other companies? ›

Intercorporate investments refer to investments one company makes in another. Intercorporate investments are typically categorized under generally accepted accounting principles (GAAP) in three categories: investments in financial assets, investments in associates, and business combinations.

What are investments in other companies on balance sheet? ›

An investment in another company is recorded as an asset on the balance sheet, just like any other investment. An equity method investment is valued as of a specific reporting date with any activity related to the investment recorded through the income statement.

What are companies that invest in other companies called? ›

A holding company is a parent company — usually a corporation or LLC — that is created to buy and control the ownership interests of other companies. The companies that are owned or controlled by a corporation holding company or an LLC holding company are called its subsidiaries.

Who invests in alternative investments? ›

Alternative investments are complex and not heavily regulated. For this reason, most alternative asset investments are held by institutional investors or accredited, high-net-worth individuals. Due to their lack of regulation, private markets are notoriously opaque compared to public markets.

What are the 4 types of investment companies? ›

Fund sponsors in the United States offer four main types of registered investment companies: mutual funds, closed‑end funds, exchange‑traded funds (ETFs), and unit investment trusts (UITs).

How to account for an investment in another company? ›

The investor records their initial investment in the second company's stock as an asset at historical cost. Under the equity method, the investment's value is periodically adjusted to reflect the changes in value due to the investor's share in the company's income or losses.

Is investment in other companies an asset or liability? ›

Non-Operating Assets: These are assets a company holds for purposes other than its core business operations. These assets may not directly contribute to revenue generation. Examples of non-operating assets include investments in different companies, unused land or buildings, or surplus cash.

Is other investments an asset? ›

Financial assets represent investments in the assets and securities of other institutions. Financial assets include stocks, sovereign and corporate bonds, preferred equity, and other, hybrid securities. Financial assets are valued according to the underlying security and market supply and demand.

Is investment in another company an operating asset? ›

Operating assets do not include assets that are used for long-term investments, like marketable stocks, assets that have been put on sale, and investment assets, such as an investment property.

What are the disadvantages of subsidiary companies? ›

One of the main disadvantages of setting up a subsidiary company is costs. In addition to the extra day-to-day running and staff costs, you may have to factor in additional costs associated with running a limited company, such as accountant and legal fees.

What are the two types of investment companies? ›

Investment companies are divided into open-end and closed-end companies, defined as follows: (1) Open-end company means an investment company which is offering for sale or has outstanding any redeemable security of which it is the issuer.

What is an example of a mixed holding company? ›

Mixed holding companies: Mixed holding companies have their own business model operating in addition to owning other businesses. For example, a large clothing brand that buys other brands and becomes their parent company would be a mixed holding company — both holding subsidiaries and running their core business.

Which is better, BlackRock or blackstone? ›

You may want to consider BlackRock if you're looking for a more traditional investment firm. The Blackstone Group caters mostly to high-net-worth individuals and exclusively manages alternative assets. If you require a more exclusive approach to investing, this could be a good fit.

Is BlackRock private equity? ›

BlackRock's Private Equity teams manage USD$41.9 billion in capital commitments across direct, primary, secondary and co-investments.

Why BlackRock alternatives? ›

Benefits of investing in alternatives

Because alternatives tend to behave differently than typical equity and bond investments, adding them to a portfolio may help to lower volatility, provide broader diversification, and enhance returns.

What is the definition of other investment? ›

Other investment is a residual category that includes all financial transactions not considered direct investment, portfolio investment, or reserve assets. Like portfolio investment, other investment is primarily divided into investments that represent the financial assets and liabilities of an economy.

Are investments in other companies an asset? ›

Longer term investments could entail the purchase of shares in a private business. These can be highly illiquid and could be made to have some control over an important relationship (for example., with a supplier or large customer). Investments held for one year or more appear as long-term assets on the balance sheet.

What is the meaning of investment company? ›

Investment companies are legally-defined and regulated entities that pool money from investors to invest in a portfolio of securities, such as stocks, bonds, and commodities.


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