SEC says umbrella fund rules to make market access easier

THE SECURITIES and Exchange Commission (SEC) said its move to allow umbrella funds — investment companies that house multiple sub-funds under a single legal structure — is meant 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 the ones buying,” he said. “If the institutional investors are few, if the retail investors are few, I think that’s one of the reasons why our market is small.”

Mr. Lim said easing regulations could help speed up market development by lowering barriers to entry for both institutional and retail participants.

The SEC on Wednesday issued Memorandum Circular No. 14, which sets the guidelines for umbrella funds that allow multiple sub-funds to operate under a single investment company.

Umbrella funds are open-end investment companies composed of at least two sub-funds with varying investment objectives, strategies, currencies and fee structures.

Each sub-fund functions as a distinct portfolio with its own assets and liabilities, even as it operates under a single legal entity.

The rules require umbrella funds to maintain at least two sub-funds and set timelines for registering additional sub-funds. Extensions for registration may be granted only 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 switch between sub-funds, subject to disclosures in the prospectus.

Fund managers must submit separate reports for each sub-fund. Monthly submissions should include the average 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 give investors a clearer view of exposure across sub-funds within the same umbrella structure.

Umbrella funds must file financial statements for both the overall entity and each sub-fund.

Consolidated financial statements are allowed if sub-fund details are disclosed in the notes, in accordance with Philippine Financial Reporting Standards and SEC reporting rules.

Investment companies must secure a license and register their securities before offering them to the public.

Securities may be registered in full for allocation across sub-funds or in stages as additional sub-funds are introduced.

The SEC said the framework aims 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