Yesterday morning, the SEC voted 4-1 to adopt a 283-page document of amendments to the “Names Rule” to prevent fund names from misrepresenting a fund’s investments and risks; in other words, “ensuring that a fund’s investment activity is consistent with the investment focus its name communicates.” The development of thematic and ESG-related objectives is one of the reasons the Commission decided to modernize and enhance the original 2001 Names Rule and other names-related regulatory requirements. According to the Fact Sheet, key provisions of the rule are:
- “The amendments … apply the rule’s 80 percent investment policy requirement to any fund name with terms suggesting that the fund focuses in investments that have, or investments whose issuers have, particular characteristics. The primary types of names that the amended rule is anticipated to cover include fund names with … terms that reference a thematic investment focus, including terms indicating that the fund’s investment decisions incorporate one or more ESG factors.”
- “Funds’ prospectus disclosure [for] a fund with an 80 percent investment policy [must] define the terms used in its name, including the criteria the fund uses to select the investments that the term describes. The rule will require that any terms used in the fund’s name that suggest an investment focus … must be consistent with those terms’ plain English meaning or established industry use.”
- A fund [must] review its portfolio assets’ treatment under its 80 percent investment policy at least quarterly. In addition, there are “specific time frames – generally 90 days – for getting back into compliance if a fund departs from its 80 percent investment policy.”
- “Fund groups with net assets of $1 billion or more will have 24 months to comply with the amendments, and fund groups with net assets of less than $1 billion will have 30 months to comply.”
The amendments become effective 60 days after publication in the Federal Register.
