What’s in a Name? Possibly Too Much, or Not Enough

SEC says today’s Names Rules may not be effective in stopping the implementation of misleading fund names.

The Securities and Exchange Commission (SEC) is soliciting public comment pertaining to the Names Rule, in addressing whether the stipulation is effective in its purpose of avoiding “misleading investors about its potential holdings and risks” when funds are named.

“The name of a registered investment company or a business development company (a ‘fund’) is a tool for communicating with investors. It is often the first piece of fund information investors see and, while investors should look closely at a fund’s underlying disclosures, a fund’s name can have a significant impact on their investment decision,” the SEC said in a report.

The procedure for assembling the framework was launched with a 60-day solicitation period for public comment on whether the existing Names Rule is effective in prohibiting funds from using names that are materially deceptive or misleading. The final rule requires a fund to invest at least 80% of its assets in the manner suggested by its name.

The SEC has found several challenges in adhering to the current Names Rule since its implementation in 2001. One of the problems is that funds increasingly use derivatives and other financial instruments that provide leverage, and “because the Names Rule is an asset-based test, it may not be well-suited [to] derivatives investments that provide significant exposure to a “type of investment.”

For more stories like this, sign up for the CIO Alert newsletter.

Convertible securities are also posing a challenge for the rule, since these types of investments harbor both debt and equity characteristics that could potentially diverge from a fund’s implicit strategy implied by its name.

The trending theme of environmental, social, and governance (ESG) investing also is posing a considerable challenge, with many different funds simply putting “ESG” in their name. However, ESG does not determine asset-level holdings, thus deviating from the intended purpose of the Names Rule.

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, cited the $1.2 billion First Trust Utilities AlphaDEX ETF (FXU) as an example of a fund that might surprise some investors, Investment News reported.

“The fund has a nearly 30% allocation to telecom companies, including AT&T, Verizon, and T-Mobile that are not utilities,” he said. “An investor buying this fund would likely be surprised to find AT&T is one of the larger holdings.”

Related Stories:

SEC Lets Steven Seagal Know He’s Not Above the Law

Research Finds Large Variations in Performance Across LPs Investing in the Same Funds

SEC Charges Convicted Criminal Over Fraudulent Coin Offering

Tags: , , , , ,

CPPIB, Mubadala Lead $2.25 Billion Funding for Google’s Waymo

The investment into self-driving 'moonshot' company signals growing interest in automated driving technology.

A Canadian public pension plan and Abu Dhabi’s sovereign wealth fund have led a $2.25 billion funding round into Waymo, an Alphabet subsidiary considered an early leader in driverless cars, the automaker said Monday.

The Canadian Pension Plan Investment Board (CPPIB) and the Mubadala Investment Company—worth US$307 billion and US$225 billion, respectively—along with technology investor Silver Lake Partners, led the funding for the auto business, owned by Google parent Alphabet.  

Additional investors include Canadian automotive supplier Magna International, venture capital firm Andreessen Horowitz, and retailer AutoNation.

Waymo, one of Alphabet’s “moonshot” companies, had not had an external funding round before this. But the company has recently met a series of operational and technical milestones, Waymo said. 

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

The driverless car, dubbed Waymo Driver, has logged more than 20 million miles across 25 cities, including on public roads in Tempe, Arizona. Its driverless ride-hailing service, the first of its kind, has served thousands of customers. 

“With this injection of capital and business acumen, alongside Alphabet, we’ll deepen our investment in our people, our technology, and our operations, all in support of the deployment of the Waymo Driver around the world,” Waymo’s chief executive, John Krafcik, said in a statement. 

For major institutional investors, the investment signals a growing interest in the disruptive influence of autonomous driving technology. Other money managers recently making commitments in other driverless businesses include W.K. Kellogg’s investment arm. Kellogg plugged in $27 million to a German venture capital firm that is seeding early-stage machine learning companies, like one building features around automated driving technology for Volkswagen.

Driverless technology has stirred up its share of public controversies, though. The Alphabet subsidiary has logged more than a dozen minor crashes on public roads in Arizona, including a pedestrian fatality in 2018.

“We’re deeply aligned with Waymo’s commitment to making our roads safer and look forward to working together to help advance and scale the Waymo Driver in the US and beyond,” said Silver Lake’s co-chief executive, Egon Durban, in a statement. Durban is a nominee for the car company’s operating board. 

Related Stories: 

Artificial Intelligence? Start Investing Now, Says Foundation Group

Why Artificial Intelligence Won’t Pick Stocks … At Least Yet

Mubadala Suspends Future Goldman Ventures Due to 1MDB Scandal

Tags: , , , , ,

«