Additional SEC Exemptive Relief in Response to COVID-19

Temporary Exemptive Relief for Open-End Investment Management Companies to Engage in Certain Borrowing Transactions
Client Alert
March 25, 2020

In light of the continuing disruptions that the COVID-19 pandemic is inflicting on financial markets, the Securities and Exchange Commission (“SEC”) on March 23, 2020 issued a temporary exemptive order (the “Temporary Order”)[1] to provide additional flexibility for (1) registered open-end investment management companies, other than money market funds (“open-end funds”) and (2) insurance company separate accounts registered as unit investment trusts (“separate accounts”) to obtain short-term funding by entering into certain borrowing transactions.  This Temporary Order will be in effect until at least June 30, 2020.

I.  The Temporary Order provides the following relief to allow open-end funds and separate accounts to borrow from an affiliated person and for an affiliated person to make collateralized loans to such open-end fund or separate account:

     Conditions:

  1. The Board of Directors of the open-end fund, including a majority of the Independent Directors, or the insurance company on behalf of the separate account, reasonably determines that such borrowing:
         
      i. is in the best interests of the open-end fund and its shareholders or unitholders; and
         
      ii. will be for the purposes of satisfying shareholder redemptions.
         
  2. Prior to relying on the relief for the first time, the open-end fund or separate account notifies the SEC staff via email at IM-EmergencyRelief@sec.gov stating that it is relying on the Temporary Order.

II.  The Temporary Relief provides the following relief for open-end funds currently able to rely on an existing interfund lending and borrowing facility order (“existing IFL order”) from the SEC:

III.  The Temporary Relief further provides the following relief for open-end funds that are not currently able to rely on a SEC order permitting interfund lending and borrowing arrangements.

IV.  Lastly the Temporary Relief allows an open-end fund to deviate from its fundamental policy with respect to lending or borrowing to the extent necessary to permit it to enter into otherwise lawful lending or borrowing transactions that deviate from any relevant policy recited in its registration statement without prior shareholder approval, provided that:

Investment advisers should consider whether it would be in the best interests of their funds and shareholders to utilize any of the provided relief and, if so, should discuss with their boards so that these short-term funding arrangements are available to be used if needed.

[1] IC Release No. 33821 (March 23, 2020).

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