Fund Valuations – A New Way to Keep Score

Robinson & Cole LLP

The Securities and Exchange Commission (SEC) recently voted to propose a new Rule 2a-5 under the Investment Company Act of 1940 (1940 Act), which would provide for a new framework for funds’ fair value determinations when a market value is not readily available (Proposed Rule). Under Section 2(a)(41)(B) of the 1940 Act, “fair value” is defined as valuations “determined in good faith by the board of directors.” The Proposed Rule would also define “readily available” market quotations for purposes of the 1940 Act. The Proposed Rule is meant to clarify how fund boards can satisfy their valuation obligations, and would apply to open- and closed-end funds as well as business development companies.

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