Starting today on October 7th, the Securities and Exchange Commission voted to adopt a new rule and related amendments to facilitate a comprehensive regulatory framework for fund of funds arrangements. The rule will create a consistent and efficient rules-based regime for the formation and oversight of funds of funds because of the Commission’s decades of experience with fund of funds arrangements.
SEC Chairman, Jay Clayton provided his insight on the new rule stating “Main Street investors have increasingly used mutual funds, exchange-traded funds (ETFs) and other types of funds to access our markets and invest for their future, to achieve asset allocation, diversification and other objectives, many funds have also invested in other funds. Today’s action will enhance and modernize the regulatory framework for these arrangements.”
Jay Clayton also adds more detail on how the framework of the new rule will help fund managers. He provides clarification here stating “The framework adopted today will provide flexibility to fund managers to allocate and structure investments efficiently, without the costs and delays of seeking individualized exemptive orders, as long as the arrangements satisfy a number of conditions designed to enhance investor protection, I thank the Commission’s staff for their work in advancing this important framework.”
How can this benefit Fund Managers?
- Rule 12d1-4 allows a fund to acquire the shares of another fund in excess of the limits of the Investment Company Act without obtaining an individual exemptive order from the Commission if the funds comply with conditions designed to enhance investor protection
- Designed to enhance the framework for funds to invest in other funds
- As far as the oversight of funds of funds and the formation goes this will create a consistent and efficient rules-based regime for Fund Managers
- It provides funds with flexibility to meet their investment objectives while still increasing the investor protections
Key Rule Conditions to Takeaway:
- Limits on Control and Voting
- Required Evaluations and Findings
- Required Fund of Funds Investment Agreements
- Limits on Complex Structures
Interest in reading the full SEC Release?
Click HERE to see the full release!
The Vigilant Team is always happy to schedule a time to chat, feel free to contact us with any questions!