Dechert LLP files a Comment Letter in Response to the SEC's Proposed Rule Regarding Fund Valuation Practices

July 21, 2020

On July 21, 2020, Dechert LLP filed a comment letter in response to the SEC’s proposed rule regarding fund valuation practices and the role of the board of directors with respect to the fair value of the investments of a registered investment company or business development company under the Investment Company Act of 1940.

Capitalizing on Dechert’s extensive practical experience advising funds, BDCs, fund boards, fund independent directors, investment advisers and fund service providers, the comment letter highlights, among other things, the prescriptive nature of the proposed rule and suggests that the SEC adopt either (i) an alternative framework, in the form of a non-exclusive safe harbor, through which a fund board could satisfy its statutory obligations under Section 2(a)(41) of the 1940 Act or (ii) adopt a version of Rule 2a-5 that allows funds greater flexibility to implement valuation practices that are appropriately tailored to a fund’s facts and circumstances.

The comment letter also addresses the fair value determination process as set forth in the proposed rule, considerations related to the performance of fair value determinations by an investment adviser to whom fair value responsibilities have been assigned, the definition of “readily available market quotations” under the proposed rule, and certain other considerations. Specifically, additional topics covered in the comment letter include the proposed requirement under Rule 2a-5 that a good faith determination of fair value would require selecting and applying in a consistent manner an appropriate methodology or methodologies for determining (and calculating) the fair value of fund investments, the board’s responsibilities when assigning fair valuation responsibilities, and the entities to which fair value responsibilities could be assigned by a fund board. In addition, the comment letter discusses the proposed periodic and prompt board reporting requirements, the proposed requirement that an adviser to whom fair value responsibilities have been assigned segregate the process of making fair value determinations from the portfolio management of the fund, the impact of the proposed rule’s definition of “readily available market quotations” on other regulatory requirements under the 1940 Act, and the potential timing of the compliance date for any final rulemaking.  

Read "Dechert Comment Letter - Investment Company Act Release No. 33845 (File No. S7-07-20); Good Faith Determinations of Fair Value"

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