The U.S. Securities and Exchange Commission has completed regulations that could help life insurers that run lifecycle funds and other “funds of funds.”
The final rule, Fund Of Funds Investments, codifies guidelines the SEC has been using to cut red tape for fund-of-funds managers who ask it for relief.
The final rule also adds disclosure requirements, to require mutual fund and variable insurance fund managers to tell investors about the expenses of any funds that the fund happens to hold.
Easing restrictions on managers of funds of funds “will expand the circumstances in which funds can invest in other funds without first obtaining an exemptive order from the commission, which can be costly and time-consuming,” SEC officials write in preamble to the proposed final rule. “We anticipate that the rules will promote efficiency and competition.”
Section 12(d)(1) of the Investment Company Act of 1940 limits investment funds’ ability to invest in shares of other funds, in an effort to keep investors in one fund from acquiring a second fund and trampling over the rights of the investors in the second fund, SEC officials write in the preamble.
Section 12(d)(1)(A) prohibits a registered fund from:
- Acquiring more than 3% of another fund’s outstanding voting securities, or charging a sales load greater than 1.5% if it acquires a smaller stake in another fund’s securities.
- Investing more than 5% of its total assets in any one acquired fund.
- Investing more than 10% of total assets in all acquired funds.