SEC updates regulatory framework for good faith determinations of fair value

Abstract

Purpose To explain the new U.S. Securities and Exchange Commission (“SEC”) Rule 2a-5 (the “Fair Value Rule”) under the Investment Company Act of 1940 (the “1940 Act”), which addresses the valuation practices of registered investment companies and business development companies. Design/methodology/approach Provides an overview of the Fair Value Rule, followed by a more detailed summary of the key provisions, including relevant guidance provided by the SEC in the release adopting the Fair Value Rule. Findings The Fair Value Rule establishes a specific framework, a standard of baseline practices across funds, and a set of required functions that must be performed in order to determine in good faith the fair value of a fund’s investments for purposes of applying Section 2(a)(41) of the 1940 Act. Originality/value Practical guidance from experienced investment management lawyers.