Funds Update Risk Disclosure with Coronavirus Language
The novel coronavirus outbreak has spurred some mutual funds to update their risk disclosure by filing sticker supplements that expressly list COVID-19 as a potential risk to shareholders. The filings are coming from both exchange-traded and open-end mutual funds and are similar to those filed around other recent potentially disruptive events, such as Brexit and the Puerto Rico bond crisis. Many more fund complexes are reviewing whether to update their own risk disclosure, industry lawyers told Fund Board Views.
The decision whether to amend a fund's risk disclosure lies with the adviser, according to Stacy Louizos, co-head of the Investment Management Group at Blank Rome LLP in New York. "The adviser knows what the risks of the funds are, so that’s where this is driven from," she told FBV. "What the board needs to do is make sure there’s a process in place."
Louizos noted that under the 2016 SEC guidance, the process of reviewing risk disclosure in light of market conditions applies all the time and isn't just a response to the current pandemic. "There is always stickering going on in prospectuses," she said, adding that funds also add these types of updated risk disclosures to annual updates and shareholder reports when the timing of those documents fits the situation.
"Funds Update Risk Disclosure with Coronavirus Language," by Hillary Jackson was published in Fund Board Views on March 19, 2020.