June 11, 2026: The SEC Names Rule Playbook for Liquid Alts (80% Policy)

If you allocate to liquid alternatives, you already know the awkward truth: the label sells the strategy. Now the label has to pass a math test.

The SEC’s amended Names Rule (Rule 35d-1) is forcing funds to line up what’s in the name with what’s in the portfolio—80% of “assets” aligned with the investment focus the name suggests. The SEC extended the compliance date for larger fund groups to June 11, 2026 (and smaller groups to December 11, 2026).

For allocators, the work isn’t theoretical. The rule changes how managers classify holdings, how they treat derivatives, and how much “drift” a product can tolerate before it has to trade—or rename.

This is a practical survival guide for liquid alts with words like “ESG,” “Growth,” “Value,” “AI,” “Income,” and similar in the name. It will also give you decision paths (change portfolio vs. rename vs. re-paper), an FAQ, and an SEC Names Rule 2026 checklist you can drop into your due diligence process.

The headline date is June 11, 2026 for large complexes, but the SEC also aligned compliance with annual filing cycles for many existing funds—so “deadline” can mean “first on-cycle annual prospectus update filed on or after the date.”

What has changed?

1) The 80% rule now catches more names

Historically, people associated the Names Rule with obvious buckets (e.g., “Munis,” “Energy,” “Japan”). The amended rule is broader. It sweeps in names that suggest the fund focuses on investments (or issuers) with “particular characteristics.”

That’s the hook that matters for liquid alts and “thematic” branding. A name can imply a characteristic without naming a sector or geography. Think: Value, Growth, Quality, Low Vol, ESG, AI, “Long/Short,” “Market Neutral,” “Managed Futures,” “Trend,” and similar. The practical impact is the same: if the name suggests a focus, the portfolio has to reflect it.

2) Funds have to define the words in the name —explicitly

The forms now require funds subject to the 80% policy to define the terms used in the name and disclose the criteria used to select qualifying investments.

This matters because it converts “marketing language” into “prospectus language.” Once it’s in the prospectus, it becomes something compliance systems have to monitor, and something allocators can underwrite.

3) Derivatives are measured in a way that can surprise you

For Names Rule calculations, “assets” aren’t just NAV. “Assets” means net assets plus borrowings for investment purposes, and derivatives are valued using notional (with specific adjustments for interest rate derivatives and options).

If you allocate to liquid alts that express exposures primarily through swaps, futures, or options, this is where the rule stops being a legal footnote and starts being a potential portfolio construction constraint.

How the 80% test works 

The basic test

At a high level:

• Numerator: value of the “80% basket” = investments aligned with the focus the name suggests.
• Denominator: value of “assets” = net assets + borrowings; derivatives use notional; physical shorts use the value of the asset sold short.

There are also permitted adjustments: funds may exclude certain cash/cash equivalents and short-dated Treasuries up to the notional of derivatives and value of shorts, and there are carve-outs for some FX hedges.

When is compliance tested?

This isn’t a once-a-year audit exercise.

• The requirement applies when the fund invests its assets, and the fund must review inclusion in the 80% basket at least quarterly.
• If the fund identifies it’s out of compliance, it must make future investments to get back as soon as reasonably practicable, and in all cases within 90 days of identifying the issue.
• If it departs in “other-than-normal circumstances,” it also has a 90-day clock to return.

Allocator translation: managers will build monitoring thresholds, buffers, and pre-trade checks. That can change how aggressively they run factor tilts, how much they use derivatives overlays, and how they hold cash.

Derivatives: what “counts” toward 80%?

Funds can include derivatives in the 80% basket if the derivative provides exposure to investments suggested by the name—and the rule also allows certain derivatives exposures to market risk factors associated with the named focus.

That sounds flexible, but it puts pressure on documentation and mapping. If a fund name says “Value,” and the portfolio uses index futures or swaps, the manager needs a defensible story for why that derivative exposure belongs in the 80% basket under its stated definitions.

Where liquid alts get tripped up

1) “AI” is not an asset class — until the prospectus says it is

If “AI” is in the name, the fund will need to define what “AI” means in investable terms.

Is it:

• companies deriving revenue from AI products?
• companies with a minimum % of R&D in AI?
• “AI-enabled” firms as determined by a third-party taxonomy?
• a model-driven strategy that uses AI (but invests broadly)?

That last one is the potential trap. “AI” can describe a process, not a portfolio. Under the amended framework, the name is about what investors would reasonably expect about the investments, not the marketing story about the research method. The forms explicitly require definitions and selection criteria for terms used in the name when subject to the 80% policy.

Allocator move: ask for the exact “AI definition” language that will sit in the summary prospectus. Underwrite that, not the pitch deck.

2) “ESG” + liquid alts often means multi-sleeve complexity

“ESG” naming isn’t just for long-only equity anymore. Many liquid alts blend ESG screens with long/short equity, credit, and derivatives overlays. Once a term implies a focus, you can expect tighter guardrails around what qualifies for the 80% basket.

An example: an ESG liquid alt that treats “ESG” as a set of constraints on the long book but runs the short book, hedges, and overlays in ways that dilute the story. Under the Names Rule, “dilution” isn’t just aesthetic—it can turn into a compliance breach that forces trades at the wrong time.

Allocator move: test “ESG consistency” across gross and net exposures, not just long holdings.

3) “Growth” and “Value” can drift faster than compliance teams like

Style labels change with the market. If a manager defines “Growth” using a third-party factor score or internal metric, you need to understand:

• how often the metric is refreshed,
• what happens when holdings migrate between buckets,
• whether “buffer zones” exist,
• and whether the manager intends to keep a compliance cushion (e.g., running 83–87% in the 80% basket to reduce forced turnover)

The SEC staff’s FAQs give a small but telling example: revising an 80% policy from broad equities to “equity investments with growth characteristics” may not be treated as a deviation from an existing fundamental policy in certain circumstances.

That’s not a free pass; it’s a reminder that definitions and policy mechanics matter as much as exposures.

Allocator move: ask whether style classification is ex-ante (pre-trade) or ex-post (after the fact). You want ex-ante controls.

4) “Income” is nuanced — and ripe for misunderstanding

Many liquid alts use “income” to mean option premia, carry, or distribution policy. The SEC staff’s view: when “income” does not refer to “fixed income” securities, it generally suggests an objective (portfolio-wide income) and would not, alone, require an 80% investment policy.

That’s helpful, but it does not eliminate risk. The anti-misleading standards still apply, and allocators should assume scrutiny will be higher on “income” products that are effectively equity vol monetization strategies.

Allocator move: if you own “income” liquid alts, request a map of distribution sources (dividends, coupons, option premia, realized gains) and stress it across regimes. Names compliance doesn’t make the cashflows safer.

The three decision paths

Path A: Change the portfolio (trade your way to compliance)

Best when:

• the fund’s name is important commercially,
• the portfolio is already close to 80%,
• the strategy can tolerate tighter guardrails without breaking.

What to watch:

• forced turnover if classifications change (style drift, ESG score changes, index rebalances),
• derivative notional effects on the denominator,
• liquidity at the rebalance points (month-end/quarter-end).

Allocator questions:

• What target range will you run (80% exactly, or a buffer)?
• What’s the escalation process if the basket falls to 81%, 80.5%, 79.5%?

Path B: Rename the fund (simplify the constraint)

Best when:

• the portfolio is truly broad,
• the term in the name is hard to define cleanly (AI is a repeat offender),
• the marketing benefit isn’t worth the operational rigidity.

Trade-offs:

• distribution impact is real, especially in wealth channels,
• existing investors may ask whether the strategy changed even if it didn’t.

Allocator question:

• Is the rename paired with a prospectus rewrite that quietly changes risk limits? If yes, treat it like a new strategy.

Path C: Re-paper (the “definitions + policies + systems” route)

Best when:

• the manager can define the term in a disciplined way,
• but needs to tighten documentation, mapping, and monitoring.

This is where most large complexes will land: rewrite the 80% policy language, clarify what counts, update prospectus definitions, and implement compliance tooling. The SEC’s framework explicitly pulls definitions and criteria into required disclosure.

A big sub-issue: changing the 80% policy later. A fund can make the 80% policy fundamental (shareholder approval needed to deviate) or rely on a 60-day notice approach for changes.

For allocators, that choice affects how “sticky” the mandate really is.

Due diligence questions list

Use this as your SEC Names Rule 2026 checklist starter set:

1. Name trigger: Which word(s) in the name drive an 80% policy, and why?
2. Definitions: Provide the exact definitions and selection criteria that will appear in the prospectus.
3. 80% basket mapping: Show how each instrument type is classified (including cash, T-bills, ETFs, swaps, futures, options).
4. Derivatives treatment: Confirm notional treatment and adjustments; show a worked example for a typical month.
5. Monitoring cadence: Who owns the quarterly review and what’s the pre-trade control?
6. Breach protocol: What triggers a breach, and what’s the 90-day remediation playbook?
7. Buffers: What compliance cushion will the manager run (and what does that do to expected exposures)?
8. Policy change mechanics: Fundamental vs 60-day notice approach — what’s the plan?
9. Operational timing: For existing funds, when is the first on-cycle annual update filed on/after the compliance date?
10. Client communications: How will they explain any portfolio or naming changes without accidentally redefining the strategy?

Allocator takeaways

• Treat June 11, 2026 as an operational deadline, not a press-release date. For existing funds, tie it to the on-cycle annual prospectus update schedule.
• Underwrite the definition of the named term as if it were a risk limit — because it will be.
• For liquid alts, derivatives are the fulcrum. Notional-based measurement can change how exposures are sized and how much cash is tolerable.
• Expect more “quiet” portfolio changes than big renames. Your diligence should catch those before they show up as tracking error.
• Add the Names Rule questions to manager reviews now — especially for strategies with ESG, AI, Growth/Value, Income branding. It’s cheaper to discover drift in a meeting than in a forced rebalance.