SEC Staff Requires Ongoing Market Risk Disclosure Reviews
The staff of the SEC’s Division of Investment Management has issued a Guidance Update calling for registered funds to update investor disclosure about risks arising due to changing market conditions. The staff instructs that all disclosure must remain “adequate in light of current conditions” by monitoring market conditions on a daily basis, assessing disclosure, and communicating with investors. The staff advises that disclosure could include prospectus updates and shareholder reports or more informal communications such as shareholder letters or websites. In particular, the staff highlights fixed income funds for the effects of potentially rising interest rates on performance, liquidity, and duration.
OUR TAKE: You have been warned that the staff will not allow fund firms to hide behind market forces (as many did in 2008) when and if interest rates start to rise and shareholders or the SEC inevitably question disclosure and marketing practices. Private fund firms should heed the warnings as well especially because no specific regulatory requirement ensures annual reviews of disclosure documents.