SEC relaxes investment restriction for funds

PHOTO FROM SEC WEBSITE

MANILA, Philippines — Certain funds will no longer be subjected to the 20-percent limit on investments in business groups following a new circular from the Securities and Exchange Commission (SEC).

The corporate watchdog on Wednesday said its Memorandum Circular No. 2, Series of 2025 issued on March 28 now exempted from the existing single business group (SBG) limit funds that did not invest in financial derivatives

These include equity funds, balanced funds and multi-asset funds that have exposure to equity securities, according to the SEC.

SBG refers to a company, its subsidiaries, fellow subsidiaries, parent company and ultimate parent company, such as big conglomerates like Ayala Corp. and SM Investments Corp.

READ: SEC exempts certain funds from single business group limit

Under prevailing rules, an investment company may not invest 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.

Likewise, investments in over-the-counter financial derivatives with high risk must not exceed 5 percent of the net assets.

These limits were imposed to encourage diversification and control the exposure of these funds to SBGs, allowing them to also manage risk.

Single issuer limit still in place

MC 2 now provides that exempted funds will still be subject to the existing 20-percent investment restriction in a single company or issuer.

The SEC relaxed its rules following “several requests from various fund managers on behalf of their respective managed funds, to be exempted from the application of the SBG limit.”

According to the commission, it will not impose fines and penalties on companies that breached the SBG limit from May 15, 2020 to March 27, 2025.

However, the SEC noted that investment funds that want to sell their products to other Asean (Association of Southeast Asian Nations) countries still need to follow the 20-percent SBG limit imposed under the Asean Standards of Qualifying Collective Investment Schemes.