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)

FAQs

What is it called when a company invests in another company? ›

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 is a company that invests in other companies? ›

Companies that private equity firms hold an interest in are considered portfolio companies. A financial sponsor and investors are required to create a private equity fund that invests in companies. Common approaches to investing in a portfolio company include leveraged buyout, venture capital, and growth capital.

What are investments in other companies on balance sheet? ›

A company's balance sheet may show funds it has invested in other companies. Investments appear on a balance sheet in several ways: as common or preferred shares, mutual funds and notes payable. Sometimes they are made to put excess cash to work for short periods.

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.

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.

How does a company invest in another company? ›

It could be through the purchase of shares of a publicly traded company on a public exchange or a privately negotiated deal for a share of a company that is not publicly traded. The investment may also involve buying the debt of another company, publicly traded or otherwise.

What term refers to a company that invests in other companies on behalf of its investors? ›

An institutional investor is a large organization that invests money on behalf of others. These investors come in many forms, such as pensions, mutual funds, banks, hedge funds, insurance companies and more.

What is a type of investment that invests in a lot of different companies called? ›

A mutual fund is a pool of many investors' money that is invested broadly in a number of companies. Mutual funds can be actively managed or passively managed.

What is it called when someone invests in a company? ›

An investor is someone who provides (or invests) money or resources for an enterprise, such as a corporation, with the expectation of financial or other gain.

Why would companies invest in other companies? ›

A corporation's motivation for purchasing the stock of another company may be as: (1) a short-term investment of excess cash; (2) a long-term investment in a substantial percentage of another company's stock to ensure a supply of a required raw material (for example, when large oil companies invest heavily in, or ...

Is investment in other companies an asset or liability? ›

Assets Based on Use

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.

How do you account for an investment in a subsidiary? ›

To do this, debit Intercorporate Investment and credit Cash. For example, if the parent bought $50,000 worth of a subsidiary's stock, it would debit Intercorporate Investment for $50,000 to reflect the new asset and credit cash for $50,000 to reflect the cash outflow.

Why BlackRock alternatives? ›

BlackRock is tomorrow's alternatives platform

We use advanced technology to help build stronger portfolios – we track 90,000 unique companies and 40,000 unique properties on eFront. We provide you with a whole portfolio view so you have a deeper understanding of how alternatives impact the rest of your portfolio.

Can I invest directly with BlackRock? ›

Buying shares in the BlackRock Income and Growth Investment Trust is easy. You can do so via a stockbroker or an online platform. You can also invest in investment trusts through your ISA with another provider or self-invested personal pension (SIPP).

What is the most popular alternative investment? ›

8 popular alternative investments: What you need to know
  1. Real Estate. Real estate is perhaps the most well-known alternative investment. ...
  2. Fine art and collectibles. ...
  3. Gold and precious metals. ...
  4. Commodities. ...
  5. Lending. ...
  6. Cryptocurrencies. ...
  7. Crowdfunding. ...
  8. Private equity.
Mar 4, 2024

What is investment in a company called? ›

Stock: A type of investment that gives you partial ownership of a publicly-traded company. Such ownership entitles you to any dividends that may be paid and you may experience gains or losses on your holdings over time.

Can one company fund another company? ›

Yes, however you must maintain separate accounting books for each. If you simply use them to shift money around you could create additional liability. It also depends on what your seeking to accomplish.

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