The amendments aim to modernize the Names Rule and promote investor protection objectives by ensuring that a fund’s portfolio of holdings aligns with its name.
The US Securities and Exchange Commission has adopted amendments to Rule 35d-1 under the Investment Company Act governing naming conventions for registered funds (the Names Rule). The Names Rule prohibits registered funds from using “materially deceptive or misleading” names. Specifically, the Names Rule requires a registered investment company or business development company with a name that suggests it focuses on a particular type of investment or investments in a particular industry, country, or geographic region, or that it suggests certain tax treatment, to invest at least 80% of its assets consistent with its name. The expanded requirements include registered fund names that indicate the registered fund’s investment decisions incorporate one or more ESG factors.
This Client Alert discusses the amendments adopted in the final rule and key differences from the original proposal. It also explores implications for the use of ESG-related terminology in US fund names, and compares the final rule with EU and UK approaches.