SEC crafts new rules on creation of umbrella funds

MANILA, Philippines — The Securities and Exchange Commission (SEC) will give investment companies more leeway in their fund offerings by allowing the creation of umbrella funds that can create sub-funds with segregated assets and liabilities.

The measure aims to provide investment companies and their fund managers greater operational flexibility and cost savings, the SEC said.

In industry parlance, an umbrella fund that contains two or more sub-funds which, in turn, may have different investment objectives, policies and strategies.

Under the SEC’s draft rules released for public comment last week, an existing investment company may convert into an umbrella fund by amending its Articles of Incorporation (AOI) and registration statement to conform with the requirements set by the proposed guidelines.

An umbrella fund must consist of at least two sub-funds at any time during its operation. However, it is granted a six-month period to comply and register at least one more sub-fund from approval of the first, in cases of new or converted investment companies, or from approval of the termination of a sub-fund that resulted in its non-compliance.

A sub-fund will only be allowed to issue a single type of security. The offering of both shares and units in a single sub-fund will be prohibited.

Failure to meet the continuing requirement on the minimum number of sub-funds will constitute a ground for suspension of the secondary license of the umbrella fund.

“The suspension order may be lifted upon approval of the second sub-fund registration or upon filing of an application to amend the AOI and RS to convert to a regular investment company,” the SEC said in its draft rules.

“Before offering shares or units pertaining to any of its sub-funds, the umbrella fund may register all of its securities at once and allocate the approved shares or units to any of its sub-funds. It may also initially register the securities to be allocated to the first sub-fund and subsequently apply for registration of the additional securities,” the SEC said.

Each sub-fund of an umbrella fund must indicate in its name its classification whether it is an Equity Fund, Bond or Fixed Income Fund, Balanced Fund, Money Market Fund, Index Fund, Feeder Fund, Fund-of-funds, Co-Managed Fund or Multi-asset/Asset Allocation Fund.

As an added precaution for investors, the SEC requires that the assets of a particular sub-fund belong exclusively to that sub-fund.