SEC Adopts Fund of Funds Rule, Amendments
The SEC adopted a new rule and related amendments designed to put in place a comprehensive regulatory framework for fund of funds arrangements. The new Rule 12d1-4 will allow a fund to acquire the shares of another fund in excess of the limits of the 1940 Act without obtaining an individual exemptive order from the Commission if the funds comply with conditions designed to enhance investor protection. The SEC is also rescinding rule 12d1-2 as well as most exemptive relief permitting fund of funds arrangements because the rule will create a new, comprehensive exemptive rule on which funds of funds can rely. The Commission is not rescinding exemptive relief granted to funds of funds that is outside the scope of the rule. Lawyers from Ropes & Gray wrote a comprehensive review of the rule and its amendments, including board reporting requirements and key observations on the rule’s implications for ETFs and closed-end funds. The lawyers note that while the new rule differs substantially from the version proposed in 2018 and does not include the proposed rule’s widely criticized redemption limits, many existing fund of funds arrangements may require modifications under the final rule.