The Securities and Exchange Commission adopted Rule 3c-7, which adjusts for inflation the dollar threshold used in defining a “qualifying venture capital fund” under the Investment Company Act, as required pursuant to Section 504 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”).  The final rule allows the SEC to adjust the threshold for inflation by order every five years and sets out how to determine these adjustments.

Section 3(a) of the Investment Company Act defines the term “investment company” for purposes of the Investment Company Act.  Section 3(c)(1) provides certain exclusions from that definition.  Section 504 of the EGRRCPA amended Section 3(c)(1) by excluding qualifying venture capital funds from the investment company definition and adds Section 3(c)(1)(C) defining a “qualifying venture capital fund,” as a “venture capital fund that has not more than $10,000,000 in aggregate capital contributions and uncalled committed capital.”  The statutory definition requires this dollar threshold to be indexed for inflation once every five years by the SEC beginning from a measurement made by the SEC on a date selected by the SEC.  In February 2024, the SEC proposed a new rule to implement these requirements and adjust the threshold.

The final rule uses December 2023 as the current measurement date, adjusts the dollar threshold to $12 million or, following November 2029 (five years from the rule’s effective date), the dollar amount specified in the most recent order issued by the SEC in accordance with the final rule.  The SEC will use the Personal Consumption Expenditures Chain-Type Price Index, or PCE Index, as the indicator of inflation going forward.  The final rule will become effective 30 days after publication in the Federal Register.

See the press release, and the final rule.

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