Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
June 09, 2008 01:00 AM

Hedge fund managers showingmutual-fund envy

Hedge funds want same access to ETFs that SEC proposal would give to retail brethren

Sara Hansard
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    WASHINGTON — The hedge fund industry wants parity with mutual funds in its ability to buy exchange-traded funds under a Securities and Exchange Commission proposal to streamline ETF regulation.

    Mutual funds and hedge funds are limited under the Investment Company Act of 1940 to ownership stakes of no more than 3% of the outstanding voting shares of other investment companies, including ETFs.

    In the SEC's proposal, which would simplify the process by which ETFs could gain regulatory approval, the agency would permit mutual funds to invest in ETFs to a greater extent than currently allowed.

    Giving hedge funds the same permission to buy more than a 3% stake in ETFs “would enhance the ability of private funds to meet their investment objectives, enhance market transparency and increase liquidity and trading of ETFs, among other benefits,” the Managed Funds Association of Washington wrote in a May 19 comment letter to the SEC on the proposal. Hedge funds are often referred to as private funds.

    The limitation was imposed by Congress because of abuses from “pyramiding,” in which funds could gain control of larger funds and enrich themselves at the expense of shareholders in the acquired fund, as well as concerns about the potential for excessive fees that could result from “layering” of fees in multiple funds.

    Despite the historical fears of abuses, “now it's come to light that there are benefits to funds of funds,” or funds that invest in other funds, said Jennifer Han, legal counsel for the MFA. “In certain instances, you can have a fund of funds and avoid the abusive situations which Congress meant to avoid,” she said.

    “There's no policy rationale for distinguishing hedge funds from other institutional investors,” Ms. Han said. “Hedge funds use ETFs like other institutional traders. They use it for hedging purposes and risk management, and also to equitize cash balances.”

    The conditions the SEC has proposed for preventing abuses are “equally applicable to private funds as they are to mutual funds,” Ms. Han said. “There's no reason not to provide the exemption” to hedge funds, she said.

    Comments favorable

    Comments filed were favorable to the overall ETF proposal, and several letters also asked that hedge funds be included in the ETF ownership proposal.

    ETFs “are an attractive investment vehicle for many institutional investors, including registered funds and hedge funds,” said Daniel Schloendorn, a partner with New York law firm Willkie Farr & Gallagher LLP. He drafted a comment letter filed with the SEC on behalf of the New York City Bar Private Investment Funds Committee, which asked that hedge funds be allowed to make larger investments in ETFs.

    “So long as hedge funds are able to satisfy the same conditions that the SEC has laid out in this rule proposal, they ought to be able to invest in ETFs beyond the 3% limit, to the same extent registered funds are,” Mr. Schloendorn said.

    Under the conditions stipulated in the SEC proposal, mutual funds could not control an ETF, the acquired ETF may not be a fund of funds and fees charged by the acquiring fund could not violate the sales charge rule of the New York- and Washington-based Financial Industry Regulatory Authority Inc. to prevent duplicative fees.

    In addition, a fund acquiring a stake in an ETF could not redeem the shares directly from the ETF but would be free to sell the shares in the secondary market.

    The Investment Company Institute, the Washington-based group that represents mutual funds, also called for the SEC to allow funds of funds to purchase more than 3% of an ETF.

    “We support these proposals because they allow affiliated funds of funds to enhance the diversification and investment opportunities they can provide to their shareholders,” said ICI spokesman Ed Giltenan.

    “There are no grounds for distinguishing between an acquiring fund that is primarily an affiliated fund of funds and another type of acquiring fund,” the ICI wrote in its comment letter, signed by ICI General Counsel Karrie McMillan.

    State Street Global Advisors of Boston also called for lifting the prohibition on hedge fund acquisitions of larger stakes in ETFs.

    “Private funds should be treated comparably to other investment companies for purposes of the rule,” James Ross, senior managing director of SSgA, wrote in his comment letter.

    The conditions the SEC has proposed for mutual funds “are equally applicable to private funds,” the SSgA letter stated.


    Sara Hansard is a reporter for InvestmentNews, a sister publication of Pensions & Investments.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Can Sustainable Labeling of Financial Products Prevent Greenwashing?
    Hedge Funds 2.0: Back to the future
    Is there a mid-cap gap in your DC plan?
    Why pursue direct lending in the core middle market?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit