Investment Company Names

Following a corresponding consultation in May 2022 (EventID 15777) and a previous announcement of a final rule relating to the naming of investment funds (EventID 23087), the Securities and Exchange Commission has published this final rule in the Federal Register. In it, the SEC describes the feedback it has received to its consultation and stipulates the final provisions as they will come into force on December 11, 2023. The application dates will vary based upon the total assets of a fund (group) as noted in the above timeline.
As we have described the final rule in detail in above noted Event, we refrain from repeating all enclosed provisions at this point. However, in brief, the SEC
– expands the 80% investment policy requirement to include fund names with terms implying an investment focus in assets with specific characteristics, such as „growth“ „value“ or „ESG“. The 80% requirement necessitates that 80% of a fund’s total assets are invested in securities featuring such characteristics.
– requires fund names to align with the plain English meaning or established industry usage of terms.
– establishes a 90-day time frame for funds to return to compliance if they deviate from their 80% investment requirement.
– mandates quarterly reviews of portfolio asset classifications under the 80% investment requirement.
– changes the method for calculating assets for „Names Rule“ purposes, with derivatives valued based on their notional amount and short sales based on the value of the asset sold short, with certain adjustments.
– modifies the notification requirements for changes to a fund’s name or its investment strategy.
– requires additional disclosure within a fund’s prospectus to clarify the terms used in the fund’s name and the criteria for selecting investments related to that name.