On September 20, the SEC adopted amendments (as set forth in the final rule
and as discussed in the fact sheet
) to the Investment Companies Act rule that requires investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest not less than 80 percent of the value of their assets in those investments (the “Names Rule”). The agency said amendments to the Names Rule will enhance its protections by addressing gaps in the current requirements and will “help ensure that a fund’s portfolio aligns with a fund’s name.”
The Names Rule promotes truth-in-advertising by ensuring that a fund whose name accurately suggests a focus on a particular type of investment adopt a policy to align its portfolio to put 80 percent of its assets toward the cause suggested by its name (the “80 percent investment policy”).
The SEC said, “the amendments will enhance the rule’s protections by requiring more funds to adopt an 80 percent investment policy, including funds with names suggesting a focus in investments with particular characteristics, for example, terms such as 'growth' or 'value,' or certain terms that reference a thematic investment focus, such as the incorporation of one or more Environmental, Social, or Governance factors.”
The amendments will expand the requirement to adopt an 80 percent investment policy to more funds, including those with names suggesting a focus in investments with particular characteristics (e.g., “growth” or “value”), or certain terms that reference the incorporation of one or more ESG factors. The amendments will also (i) require that a fund conduct a quarterly review of its portfolio assets’ treatment under its 80 percent investment policy; (ii) establish deadlines for getting back into compliance if a fund departs from its 80 percent investment policy; (iii) enhanced prospectus disclosure requirements to require that terminology used in fund names that suggest an investment focus must be consistent with the plain English meaning or established industry use of such terms.
The amendments will become effective 60 days after publication in the Federal Register. Fund groups with more than $1 billion in assets under management will have two years to comply with the rule. Funds that manage less than $1 billion will be given 30 months to comply with the rule.