What You Need to Know
- The SEC's current rule has worked well for 20 years, Pan said.
- The new rule would place enormous costs on funds to comply, Pan told the SEC.
- A fund's name cannot stand alone, he argued.
ICI President and CEO Eric Pan told the Securities and Exchange Commission on Tuesday to discard its plan to require certain funds to adopt a policy to invest at least 80% of their assets in accordance with the investment focus that the fund’s name suggests, updating the rule’s notice requirements and establishing recordkeeping requirements.
Pan told the SEC in a comment letter that its current fund names rule “has worked well for 20 years. It recognizes that a fund’s name does not, and cannot, communicate everything that investors want to know about a fund before investing.”
Prospective investors, Pan continued, “understand that a name is simply a starting point for understanding the fund’s investment strategies. In addition to the name, there are extensive documents prepared by funds describing their strategies, objectives and holdings.”
The SEC under its proposed changes to its Investment Company Names rule “now wants a fund’s name to stand alone, despite all this comprehensive disclosure.”
The comment period expired Tuesday.
Pan argued that the rule “would place enormous costs on funds to comply with this new, complex regime,” and that the costs “will ultimately be paid by investors. The proposal also places the Commission in the position of second-guessing how investment professionals choose investments and execute strategies. This is not the SEC’s job.”
According to the SEC’s own estimates, “fund industry costs could range between $500 million and an astronomical $5 billion. Costs could easily reach the high end of this range, or even higher, due to the fundamental differences between the current and proposed rule,” Pan said.