On October 7, 2020, the Securities and Exchange Commission (“SEC” or “Commission”) adopted a new rule, Rule 12d1-4, and related amendments designed to permit a registered investment company or business development company or “BDC” to acquire the securities of any other registered investment company or BDC in excess of the limits in section 12(d)(1) of the Investment Company Act of 1940. The related amendments are the following:
The new rule will be effective 60 days after publication in the Federal Register, but, in order to facilitate a transition period, the compliance date for the amendments to Form N-CEN will be 425 days after publication in the Federal Register. The rescission of Rule 12d1-2 and the Commission’s exemptive orders will be effective one year from the effective date of the rule.
Foley will provide an analysis of the new rule, and related insights, in a client alert to be published in the near term. Meanwhile, the summary of the new rule provided by the SEC is found below. Click HERE to see the full SEC release.
Rule 12d1-4 will permit a registered investment company or business development company or “BDC” (referred to as “acquiring funds”) to acquire the securities of any other registered investment company or BDC (referred to as “acquired funds”) in excess of the limits in section 12(d)(1) of the Investment Company Act of 1940. The rule will create a consistent framework for fund of funds arrangements to replace the existing approach, which depends on the Commission’s exemptive orders and varies based on an acquiring fund’s type. Open-end funds, unit investment trusts, closed-end funds (including BDCs), exchange-traded funds and exchange-traded managed funds will all be able to rely on Rule 12d1-4 as both acquiring and acquired funds.
While the rule contains elements from the Commission’s current exemptive orders permitting fund of funds arrangements, it is tailored to enhance investor protections while providing funds with flexibility to meet their investment objectives in an efficient manner. The rule’s conditions include the following: