Fidus Investment (FDUS) - 2024 Q4 - Annual Report

Financial Metrics - The net asset value per share is determined quarterly, reflecting the total assets minus liabilities and preferred stock, divided by the total number of shares outstanding[75]. - The base management fee is set at an annual rate of 1.75% based on the average value of total assets, excluding cash equivalents, and is payable quarterly[81]. - The incentive fee includes a capital gains portion, calculated as 20.0% of net capital gains at the end of each fiscal year[85]. - The hurdle rate for pre-incentive fee net investment income is fixed at 2.0% per quarter, with potential for higher returns in a rising interest rate environment[84]. Investment Performance - In Year 1, Company A received a $4.0 million investment, Company B received$ 7.5 million, and Company C received $6.25 million[92]. - In Year 2, Investment A was sold for$ 12.5 million, while the fair market value (FMV) of Investment B and C was determined to be $6.25 million each[92]. - In Year 3, the FMV of Investment B increased to$ 6.75 million, and Investment C was sold for $7.5 million[92]. - The cumulative realized capital gains from Investment A and C amounted to$ 9.75 million, with a capital gains incentive fee of $1.8 million paid in Year 2 and Year 3[92][94]. Agreements and Compliance - The Investment Advisory Agreement was approved to continue until June 20, 2025, with automatic annual renewals unless terminated earlier[96][102]. - The Administration Agreement was also approved to continue until June 20, 2025, with similar renewal terms as the Investment Advisory Agreement[102]. - The company must distribute at least 90% of its investment company taxable income to maintain its RIC status and avoid U.S. federal income tax on distributed income[136]. - The company is subject to compliance with the Sarbanes-Oxley Act of 2002, which imposes various regulatory requirements on publicly held companies[134]. - The company is in compliance with NASDAQ Global Select Market corporate governance regulations applicable to BDCs[135]. Investment Strategy and Restrictions - The company may invest up to 100% of its assets in privately negotiated transactions, potentially being deemed an "underwriter" for public resale purposes[107]. - The company must ensure that qualifying assets represent at least 70% of its total assets to comply with the 1940 Act[108]. - The company may not invest more than 30% of its regulatory capital in any one portfolio company without prior SBA approval[127]. - The company must ensure that at least 50% of its assets consist of cash, U.S. Government securities, and other qualifying securities to meet diversification requirements[140]. Risk Management - The company faces competition from larger funds and financial institutions with greater resources and fewer regulatory restrictions[76]. - The company’s risk management systems are designed to monitor market risks, including interest rate volatility and economic instability[426]. - Changes in interest rates may materially affect the company's net investment income and overall financial performance[429]. - A hypothetical 200 basis point increase in interest rates could lead to a net decrease in net investment income of$ 10.1 million[431]. Financial Obligations - The company has $45.0 million of borrowings outstanding under its Credit Facility as of December 31, 2024[432]. - The Credit Facility bears interest at a rate of 2.675% on SOFR loans prior to satisfying certain conditions, reducing to 2.50% after[428]. - The company pays a commitment fee on the unused portion of the Credit Facility, ranging from 0.50% to 2.675% per annum[428]. - The company is subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless it distributes at least 98% of its net ordinary income for each calendar year[138]. Portfolio Management - The investment advisor is responsible for portfolio composition and investment execution, ensuring alignment with the company's strategic goals[84]. - The investment advisor's expertise is leveraged to assess risks and determine pricing for portfolio investments[77]. - The investment advisor is responsible for providing managerial assistance to portfolio companies, with fees reimbursed for such services[109]. - As of December 31, 2024, 50 portfolio companies' debt investments bore interest at a variable rate, representing$ 704.0 million of the portfolio on a fair value basis[428]. - As of December 31, 2023, 46 portfolio companies' debt investments bore interest at a variable rate, representing $629.3 million of the portfolio[428]. Regulatory Considerations - The company has adopted written compliance policies and procedures to prevent violations of U.S. federal securities laws[118]. - The company may face challenges in meeting the Annual Distribution Requirement due to the illiquid nature of its portfolio[148]. - If the company fails to qualify as a RIC for more than two taxable years, it may be subject to corporate tax on net built-in gains upon requalification[158]. - The company may be required to recognize taxable income without receiving corresponding cash, impacting its ability to meet the Annual Distribution Requirement[143].