SEC Proposes New Rule to Modernize Fund Valuation Framework: Proposed Rule 2a-5 Under the Investment Company Act of 1940 Would Establish Requirements for the Determination of Fair Value for Fund Investments, Codify the Ability of Fund Boards to Assign Fair Value Determinations to a Fund’s Investment Adviser and Rescind Certain Existing Guidance

Sullivan & Cromwell LLP - April 29, 2020

On April 21, 2020, the Securities and Exchange Commission voted unanimously to propose Rule 2a-5 under the Investment Company Act of 1940, intended to modernize the framework for fund valuation practices and clarify how boards can satisfy their valuation obligations with respect to registered investment companies and business development companies. The SEC’s approach recognizes that most fund boards do not play a day-to-day role in the pricing of fund investments, and would allow a fund’s board to assign the determination of fair value to the fund’s investment adviser, subject to detailed conditions and oversight requirements.

This memorandum provides an overview of the proposed rule and potential areas of focus for commenters. The public comment period for the proposed rule will remain open until July 21, 2020.