SEC Updates Small Entity Definitions for Investment Companies and Advisers

The Securities and Exchange Commission (SEC) announced on November 4, 2026, that it has adopted amendments to the definitions of small entities for registered investment companies, investment advisers, and business development companies. These changes, made under the Regulatory Flexibility Act, aim to modernize thresholds that had not been significantly updated since 1998.

Key Changes to Small Entity Definitions

Under the previous rules, a registered investment company was classified as a small entity if it and its related funds had combined net assets of $50 million or less. Similarly, an investment adviser qualified as a small entity if it managed less than $25 million in regulatory assets, had less than $5 million in balance-sheet assets, and met specific control relationship criteria.

The amendments significantly raise these thresholds. For investment companies, the new threshold is $10 billion in aggregate net assets for a fund family, as defined under Form N-CEN Item B.5. For investment advisers, the threshold has been increased to $1 billion in regulatory assets under management, with corresponding adjustments to balance-sheet and control-relationship criteria. Additionally, the SEC will apply inflation adjustments to these thresholds every 10 years.

Implications of the Amendments

According to the SEC’s January 2026 proposal, the previous definitions captured only 0.6% of registered investment companies and 3% of registered investment advisers. By raising the thresholds, the amendments are expected to expand the number of entities classified as small, thereby broadening the scope of firms considered in regulatory impact analyses under the Regulatory Flexibility Act. However, the amendments do not exempt these entities from securities-law obligations or alter the asset threshold for SEC registration.

The SEC’s analysis indicated that the $10 billion fund-family threshold aligns with the 80th-percentile family size of $10.04 billion, covering approximately 80% of fund families, 22.9% of individual funds, and 2.13% of aggregate average total net assets. These changes are designed to better reflect the current economic landscape and reduce compliance burdens for smaller firms in future SEC rulemaking.