Grail Advisors LLC is in talks to sell itself, in whole or in part, and expects to make an announcement about the transaction in the next two to four weeks.
Executives of Grail Advisors, a provider of active exchange-traded funds and a unit of merchant bank Grail Partners LLC, have been talking to a “well-known firm in the money management space that is just as excited about the active ETF space as we are,” said CEO William M. Thomas. He declined to name the firm but said it doesn't do business with Grail.
The firm first disclosed the potential sale in a Jan. 5 filing with the Securities and Exchange Commission.
In that filing, the firm wrote it had “entered into a letter of intent concerning a transaction involving its ownership interests in order to enable it to continue its operations, including paying its future obligations under its fee waiver and expense reimbursement agreements.”
If the transaction falls through, Grail Advisors might have to liquidate its ETFs, the filing stated. Grail Advisors has five funds with a total of $20.8 million in assets.
In an interview last week, Mr. Thomas said the firm has no plans to close its business.
Although many fund companies — including Eaton Vance Corp. and T. Rowe Price Group Inc. — have filed with the SEC to launch actively managed ETFs, it is more likely that the firm talking to Grail Advisors is one that hasn't done any work yet or spent money on SEC filings to get into this business, said Scott Burns, an analyst at Morningstar Inc. in Chicago.
“It could be a very quick way for a fund company to jump-start this process, because they would instantly get the exemptive relief from the SEC,” he said.
It can take months, if not years, for the SEC to approve an active ETF.
Grail Advisors has had a tough time gaining assets in its functioning ETFs. In August, the firm closed two of its ETFs — Grail RP Financials and Grail RP Technology. The funds, launched in September 2009, were managed by RiverPark Capital and had $2.5 million in assets each.
The potential implications of an acquisition on the future of the active ETF market will depend largely on who buys the firm, said Noah Hamman, chief executive of AdvisorShares Inc., an active ETF provider in Washington.
“If a big institutional firm picks them up, saying they realize the value of what they are doing, that would be great for the industry.”
Jessica Toonkel is a reporter with InvestmentNews, a sister publication of Pensions & Investments.