Investment Objectives for a Fund of Funds
This article was originally published in the Investment Funds Practitioner in November 2012.
We have observed fund-of-fund structures involving conventional mutual funds under common management where only the name of the bottom fund is referenced in the investment objectives of the top fund, along with a statement that the top fund will invest in securities of the bottom fund. These structures have involved a one-to-one relationship between a top and bottom fund. Absent from the investment objectives of the top fund, however, has been disclosure about the specific investment objectives of the bottom fund.
Where there is a one-to-one relationship between conventional mutual funds under common management, staff do not consider it sufficient for the investment objectives of the top fund to only state that the top fund’s investment objectives are to invest in a named bottom fund. Disclosure of the bottom fund’s investment objectives in the top fund’s investment objectives is appropriate in view of the fund-of-fund structure which provides direct exposure to the portfolio of securities held by the bottom fund and is also consistent with disclosure rules.1 Issuers are reminded to provide this disclosure for conventional funds where there is a one-to-one relationship between top and bottom funds.
1Instruction 9 to Item 3 – Investments of the Fund in Form 81-101F3 Contents of Fund Facts Document.