The staff of the SEC’s Division of Investment Management has issued a Guidance Update advising fund sponsors to discontinue using the terms “protected” or “guaranteed” in fund names. The staff indicates that using the term “protected” to describe a fund that invests a portion of its assets in cash instruments does not describe the degree to which such volatility tools may fail. The staff suggests using “managed risk” instead. The staff also states that the term “guaranteed” does not adequately describe counterparty credit risk or the contractual limits of such guarantees. The Guidance Update recommends that advisers and boards consider renaming funds that currently use such terms.
OUR TAKE: This Guidance Update is less significant for new registrants than for longstanding funds that now must absorb the costs inherent in a fund name change.