The Securities and Exchange Commission voted to issue for public comment Wednesday a proposed new rule and related amendments to streamline and enhance the regulatory framework for fund of funds arrangements.
“Mutual funds, exchange-traded funds (ETFs) and other types of funds have become increasingly important for Main Street investors to save for retirement and meet their other financial goals,” said SEC Chairman Jay Clayton, in his remarks at the SEC open meeting. “These funds invest in other funds for a variety of reasons, including to achieve asset allocation or diversification in an efficient manner, as well as to hedge and otherwise manage risk.”
However, Clayton continued, “depending on the size of the investments, funds may be required to seek an exemptive order, causing costs and delays, and resulting in a regulative regime where substantially similar fund of funds arrangements may be subject to different conditions. This proposal would create a consistent, rules-based framework for fund of funds arrangements while providing robust protections for investors.”
The commission’s proposal, which will be out for a 90-day comment period, would allow 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.
“In order to rely on the rule, funds must comply with conditions designed to enhance investor protection, including conditions restricting funds’ ability to improperly influence other funds, charge excessive fees, or create overly complex fund of funds structures,” the SEC states.