THE SECURITIES and Exchange Commission (SEC) said its move to permit umbrella funds — investment firms that house multiple sub-funds under a single legal structure — is supposed to simplify participation in Philippine capital markets.
“[The rationale behind the umbrella fund] is to make things easy,” SEC Chairman Francisco Ed. Lim told reporters on the sidelines of an event on Wednesday.
“The mutual fund industry is a key stakeholder in our capital markets because they’re those buying,” he said. “If the institutional investors are few, if the retail investors are few, I feel that’s certainly one of the the reason why our market is small.”
Mr. Lim said easing regulations could help speed up market development by lowering barriers to entry for each institutional and retail participants.
The SEC on Wednesday issued Memorandum Circular No. 14, which sets the rules for umbrella funds that allow multiple sub-funds to operate under a single investment company.
Umbrella funds are open-end investment firms composed of a minimum of two sub-funds with various investment objectives, strategies, currencies and fee structures.
Each sub-fund functions as a definite portfolio with its own assets and liabilities, at the same time as it operates under a single legal entity.
The principles require umbrella funds to keep up a minimum of two sub-funds and set timelines for registering additional sub-funds. Extensions for registration could also be granted just for meritorious reasons approved by the commission.
The memo outlines procedures for launching, reallocating and terminating sub-funds. These include board approval requirements and investor notification obligations.
It also allows investors to change between sub-funds, subject to disclosures within the prospectus.
Fund managers must submit separate reports for every sub-fund. Monthly submissions should include the typical net asset value per unit, while quarterly and annual reports must include five-year performance data.
The framework also requires detailed disclosure of cross-sub-fund investments, including holdings, market value, net asset value share and related fees.
These disclosures are intended to provide investors a clearer view of exposure across sub-funds inside the same umbrella structure.
Umbrella funds must file financial statements for each the general entity and every sub-fund.
Consolidated financial statements are allowed if sub-fund details are disclosed within the notes, in accordance with Philippine Financial Reporting Standards and SEC reporting rules.
Investment firms must secure a license and register their securities before offering them to the general public.
Securities could also be registered in full for allocation across sub-funds or in stages as additional sub-funds are introduced.
The SEC said the framework goals to support capital market development, enhance investor protection and ensure full and fair disclosure.
It added that allowing multiple sub-funds under a single entity could improve operational flexibility while offering investors more diversified and cost-efficient investment options. — Alexandria Grace C. Magno