SEC Modernizes The "Names Rule" For Funds

What's in a name? According to the Securities and Exchange Commission, quite a bit. On September 20, 2023, the SEC adopted amendments to the Investment Company Act of 1940, most notably to the "Names Rule" governing the names of funds to ensure that they do not mislead investors regarding the fund's risks and investment characteristics. The SEC commented that the updates are designed to "address[] materially deceptive and misleading use of environmental, social, or governance (ESG) terminology in fund names."

As the SEC noted, the fund's name "is the first piece of information that investors receive" and signals to investors the types of investments the fund will pursue. The Names Rule was first implemented in 2001 and required any fund whose name suggested an investment in a particular type of industry or geographic location to invest 80% of its assets accordingly. This 80% rule could be implemented in two ways: (1) a fund could implement a "fundamental policy"