Who may be interested: Registered Investment Companies; Registered Investment Advisers; Boards of Directors; Boards of Trustees; Compliance Officers
Quick Take: On February 18, 2026, the staff of the SEC’s Division of Investment Management (Staff) issued new FAQs addressing the SEC’s 2023 amendments to Rule 35d‑1 under the 1940 Act (Names Rule). The 2001 Names Rule required a fund to adopt a policy to invest at least 80% of its assets in accordance with the investment focus suggested by the fund’s name. The amendments expanded the Names Rule’s coverage to include any fund name with terms suggesting that the fund focuses on investments that have, or investments whose issuers have, particular characteristics (e.g. growth, value, or environmental, social and governance).
These updates build on the FAQs the Staff first issued in January 2025 and provide additional clarification for funds preparing to comply with the Names Rule.
1. Adoption or Revision of 80% Investment Policy
Under the Names Rule, a fund may elect to make its 80% investment policy as either fundamental (i.e., a policy that may not be changed without shareholder approval) or non-fundamental, in which case shareholders must receive notice at least 60 days prior to any change in the policy.
According to the FAQs, the Staff would not object if a fund did not provide a 60-day notice either when there are non-material changes to an existing non-fundamental 80% investment policy solely to comply with the amended rule, or when there are changes that make the policy more stringent in light of how the fund’s name is treated under the amended rule.
The Staff states in the FAQs that the notice requirement is intended to allow shareholders time to redeem if a fund adopts a materially different investment policy than its name suggests. Non-material compliance revisions or changes that make a policy more stringent do not raise this concern because they do not depart from the investment focus investors reasonably expect.
The FAQs also address application of the 80% test to funds that invest in private funds or special purpose vehicles though capital commitments (portfolio fund). Where a fund’s investment in a portfolio fund qualifies for inclusion in its 80% basket, the fund may also count as qualifying for purposes of its 80% investment policy the value of any cash and cash equivalents held to cover unfunded equity commitments to those portfolio funds provided the fund reasonably expects those commitments to be called in the future. Permitting such cash to count toward the 80% basket appropriately reflects the economic reality that those assets are earmarked for qualifying investments. The Staff indicates that funds adopting this approach should include explanatory disclosure in their registration statement.
2. Specific Terms Commonly Used in Fund Names
The 2023 Adopting Release states that if a term in a fund’s name can reasonably be understood to reference either the characteristics of the fund’s individual investments or the intended result of the fund’s portfolio investments in the aggregate, the 80% requirement generally applies.
The FAQs reaffirm that terms such as “growth” and “value” usually indicate that a fund focuses on investments with those characteristics and require adoption of an 80% investment policy tied to those terms. However, the Staff acknowledged limited circumstances where pairing “growth” or “value” with other modifying terms may alter that conclusion. If the combined terminology clearly indicates that growth or value investments are not the predominant component of the portfolio, and no other aspect of the name independently triggers the rule, the Names Rule would not require an 80% investment policy with respect to those terms.
For example, the term “income,” when paired with “growth,” generally conveys a portfolio-level objective of achieving current income and capital appreciation, rather than a focus on growth investments. In these circumstances, an 80% investment policy with respect to the term “growth” would not be required.
The FAQs also clarify that funds using the terms “merger” or “merger arbitrage” in their names are not required to adopt an 80% investment policy with respect to those terms. The Staff views these terms as describing an investment technique or strategy, similar to descriptors such as “long/short” or “hedged,” rather than the characteristics of portfolio investments.
The Staff’s responses to the FAQs can be found here. Our previous coverage of the adoption of the Names Rule amendments can be found here. As a reminder, the compliance dates for the Names Rule amendments are December 10, 2025 for larger entities and June 10, 2026 for smaller entities.
* Assets means nets assets, plus the amount of any borrowings for investment purposes.