Deceptive fund name crackdown puts investment managers on edge
Investment managers are up in arms about US plans to revamp the rules around fund names, saying they will discourage stockpicking and other active management and threaten to undermine financial stability.
The Securities and Exchange Commission is trying to crack down on misleading marketing by requiring funds to prove that 80 per cent of their holdings match their names. The proposal under chair Gary Gensler would apply to everything from “core” and “growth” funds to those that purport to invest in “sin stocks” or claim to rely on “ESG” — environmental, social and governance investing factors.
This “names rule” has been around for 20 years, but applied mostly to concrete terms such as “bond” or “equity” and explicitly excluded thematic investment strategies.
“Imagine something goes massively wrong or massively right with a particular sector,” said George Raine, a Ropes & Gray partner who specialises in fund management. “It becomes a ticking time bomb. Everyone knows that after 29 days there are going to be all of these mutual funds that are going to have to sell or buy.”
The Investment Company Institute, the main industry lobby group, said the proposed rule would increase costs because 92 per cent of funds would have to develop new systems to monitor for daily compliance. The SEC’s own estimates put the cost to the fund industry at up to $5bn. The agency declined to comment.
This story originally appeared on: Financial Times - Author:Brooke Masters
