CCO Resource Center: Fund-of-Funds Rule: Policies and Procedures

Chief Compliance Officer Committee 

Fund-of-Funds Rule: Policies and Procedures

In October 2020, the SEC adopted Rule 12d1-4 under the Investment Company Act that governs “fund-of-funds” arrangements. The rule permits registered investment companies (“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 Act. The Rule was intended to create a consistent framework for fund-of-funds arrangements by replacing the SEC’s previous approach, which was handled through the SEC’s exemptive order process and varied based on an acquiring fund’s type, with a rule governing these arrangements. Open-end funds, unit investment trusts, closed-end funds (including BDCs), exchange-traded funds, and exchange-traded managed funds can rely on the new Rule as both acquiring and acquired funds.  Importantly, the Rule includes various conditions.  For more details concerning the rule and for sample agreements that members can use to comply with it, please see the heading “Fund of Fund Resources” in the Miscellaneous Resources section of this Resource Center.

Subsequent to the rule’s adoption, members adopted compliance policies and procedures relating to the rule.  As members share their policies and procedures with me, they will be posted here in the order in which they are received.

• Policy No. 1, including Form Findings and Evaluations for Acquiring and Acquired Funds (January 2022)

The documentation provided by ICI that may be accessed by members of the CCO Committee is restricted to the member’s use only and not for distribution or reproduction. Documentation may be used internally at member organizations but may not be shared outside the organization.