The International Organization of Securities Commissions (IOSCO) on Thursday published a consultation report on Good Practices for the Termination of Investment Funds, which proposes a set of good practices on the voluntary termination process for investment funds.
"The decision to terminate an investment fund can have a significant impact on investors in terms of cost or their ability to redeem their holdings in a timely manner," IOSCO says in a statement.
Although most regulatory regimes have rules guiding involuntary terminations, such as when a fund falls into insolvency, the principles proposed Thursday target voluntary fund terminations, which may occur when a fund manager decides that a particular fund is no longer profitable, the IOSCO paper says.
Instead of repaying investors, fund firms will often merge the assets of terminated funds with another fund, the paper notes, and IOSCO is considering how this practice impacts the termination process.
"IOSCO's work focuses on voluntary terminations with the objective to develop a set of good practices for the termination of investment funds which take into account investor interests during this process," IOSCO adds.
Among other things, the paper sets out good practices in areas such as: disclosure; the decision whether to terminate, or merge funds that are to be shut down; and issues that may arise during the termination process.
The proposals target a broad range of funds, including both traditional investment funds, and other fund structures, such as commodity, real estate and hedge funds.
Comments on the consultation paper are due by Oct. 17.
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