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SEC announces new “smaller fund outreach effort”

Many small and medium fund sponsors, irrespective of their investment in illiquid securities, have spent the past year or so vetting data vendors, working with service providers and drafting compliance policies in order to comply with the requirements of the SEC’s Rule 22e-4 (the “Liquidity Rule”). Thus, they could be forgiven for doing a double take when reading the beginning of the featured quote from the SEC’s recently announced smaller fund outreach [initiative]. [link: https://www.sec.gov/new-smaller-fund-outreach-effort-seeks-to-promote-choice-for-main-street-investors ]” We are eager to hear about opportunities to ease compliance burdens…”. Nevertheless, such a tone from the SEC will no doubt be welcomed by the sponsors of smaller funds. Smaller sponsors are much more likely than their larger competitors to be subsidizing fund product through fee waivers and/or reimbursements in order to keep expense ratios to a competitive level. Therefore, the marginal cost of each new compliance initiative is likely to come directly from the sponsor’s purse. As these costs stack up, some sponsor’s might choose to throw in the towel and close funds, or decide against launching new, innovative product altogether. It seems that the SEC is interested in exploring such unintended consequences of their own rulemaking. Fund sponsors wishing to share their perspective on this matter may do so via email at  IM-SmallerFundOutreach@sec.gov.





This article is not a solicitation of any investment product or service to any person or entity. The content contained in this article is for informational use only and is not intended to be and is not a substitute for professional financial, tax or legal advice.

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