SEC drafts rules for umbrella funds

Published February 21, 2022, 3:19 PM

by James A. Loyola

The Securities and Exchange Commission (SEC) is planning to allow investment companies to operate as umbrella funds that can create sub-funds with segregated assets and liabilities.

The Commission has released for public comment the proposed rules on the creation and operation of umbrella funds, which will provide investment companies and their fund managers greater operational flexibility and cost savings.


An umbrella fund is a registered, open-end investment company that consists of two or more sub-funds that may pursue different investment objectives, policies and strategies.

The proposed rules will apply to newly formed, as well as existing, open-end investment companies seeking to adopt an umbrella fund structure.

Under the draft rules, an existing investment company may convert into an umbrella fund by amending its Articles of Incorporation (AOI) and Registration Statement (RS) to conform with the requirements set by the proposed guidelines.

All investment companies that intend to create sub-funds will be required to include “Umbrella Fund” in their respective names.

An umbrella fund must consist of at least two sub-funds at any time during its operation. However, it is granted a six-month period to comply and register at least one more sub-fund from approval of the first, in cases of new or converted investment companies, or from approval of the termination of a sub-fund which resulted in its non-compliance.

Failure to meet the continuing requirement on the minimum number of sub-funds will constitute a ground for suspension of the secondary license of the umbrella fund.

The suspension order may be lifted upon approval of the second sub-fund registration, or upon filing of an application to amend the AOI and RS to convert to a regular investment company.

Before offering shares or units pertaining to any of its sub-funds, the umbrella fund may register all of its securities at once and allocate the approved shares or units to any of its sub-funds.

It may also initially register the securities to be allocated to the first sub-fund and subsequently apply for registration of the additional securities.

A sub-fund will only be allowed to issue a single type of security. The offering of both shares and units in a single sub-fund will be prohibited.

The umbrella fund will not be allowed to issue securities in its own name, except in connection with any of its sub-funds. However, the umbrella fund will still be the issuer or registrant of all securities to be issued by all of its sub-funds.

In offering securities to the public, the umbrella fund must be licensed to act as an investment company. Moreover, securities must not be sold or offered for sale or distribution without an RS duly filed with and approved by the Commission, pursuant to the Securities Regulation Code (SRC).

In addition, an umbrella fund will not be allowed to establish and offer the securities of a new sub-fund unless the Commission has approved the securities and the relevant Sub-Fund Supplement.

Each sub-fund of an umbrella fund must indicate in its name its classification whether it is an Equity Fund, Bond or Fixed Income Fund, Balanced Fund, Money Market Fund, Index Fund, Feeder Fund, Fund-of-funds, Co-Managed Fund or Multi-asset/Asset Allocation Fund.

The assets of a particular sub-fund will belong exclusively to the said sub-fund. Any liability that is attributable to a sub-fund may only be discharged out of the assets of the said sub-fund.

The public may access the draft Memorandum Circular providing for the Rules on Umbrella Funds on the SEC website. All interested parties have until March 4, 2022 to submit their comments and inputs through email at [email protected]