In response to requests from fund managers, the Securities and Exchange Commission (SEC) has relaxed the single business group (SBG) investment limit for equity funds, balanced funds, and multi-asset funds that have actual exposure to equity securities.

The Commission on March 28 issued SEC Memorandum Circular (MC) No. 2, Series of 2025, which provides for the rules on SBG investment limitation, following several requests from various fund managers on behalf of their respective managed funds to be exempted from the application of the SBG limit.

MC 2 provides exemptions to the SBG limit imposed by MC 15, Series of 2020, which defines an SBG as a company, its subsidiaries, fellow subsidiaries, parent company and ultimate parent company.

Under the prevailing SBG limit, an investment company is prohibited from investing, in aggregate, more than 20 percent of its net assets in transferable securities, money market instruments, deposits, and over-the-counter financial derivatives issued by any SBG, provided the investments in over-the-counter (OTC) financial derivatives with non-investment grade or unrated counterparty shall not exceed five percent of the net assets of the investment company.

MC 2 provides that funds which have no actual investment in financial derivatives shall not be subject to the SBG limit. This includes equity funds, balanced funds, and multi-asset funds that have actual exposure to equity securities.

Instead, these exempted classes of investment companies will be subject to the single entity or issuer investment limitation under Rule 6.8(b) of the implementing rules and regulations (IRR) of Republic Act (RA) No. 2629, or the Investment Company Act (ICA), until further notice by the Commission.

All investment companies, including the covered funds, shall continue to be subject to all other investment limits and restrictions under existing Commission rules and regulations, as may be applicable. This applies to investment companies with or without actual investments in financial derivatives.

The SEC will not be imposing fines and penalties for any breach of the SBG limit committed by the covered funds, whether or not they have actual investments in financial derivatives, from May 15, 2020, or the effectivity date of SEC MC 15 issued in 2020, until March 27, 2025, or the day before the effectivity date of MC 2.

Any breach of the single entity/issuer limit in Rule 6.8(b) by the covered funds will result in the imposition of corresponding fines and penalties under the ICA’s IRR and other applicable laws, rules, and regulations.

Meanwhile, investment companies, including equity, balanced funds, and multi-asset funds with actual exposure to equity securities, whether or not such funds have actual investments in financial derivatives, seeking to engage in the cross-border offering of their funds to other Association of Southeast Asian Nations (ASEAN) member jurisdictions as qualifying collective investment schemes are required to comply with the 20-percent SBG limit in the ASEAN standards of qualifying collective investment schemes.