SEC Allows Multimanager Exemptions Again


Order Permits Exemptive Order for Manager of Managers

By John M. Baker, Esq.

July 6, 2001 – The Securities and Exchange Commission today published in the Federal Register an order granting a manager of managers exemptive order and denying a request for a hearing. Release No. IC-25055, 66 Fed. Reg. 35676 (June 29, 2001).

In “manager of managers” or “multimanager” arrangements, a single investment adviser to a mutual fund complex selects and retains subadvisers to the various funds in the complex. The investment adviser treats the subadvisers in a capacity similar to that of individual portfolio managers, and it can enter into and materially amend subadvisory agreements without shareholder approval. The SEC originally approved a multimanager arrangement in an exemptive order granted to Frank Russell Investment Company in 1995. Since then the SEC staff, using its delegated authority to approve exemptive orders presenting no significant issues that have not been previously settled by the Commission, has issued nearly 70 other manager of managers exemptive orders. In the absence of SEC exemptive relief, each new or materially amended subadvisory agreement would require a special meeting and vote of shareholders.

Earlier this year, Fund Democracy, LLC (supported by Institutional Shareholder Services) submitted a hearing request in opposition to a manager of managers exemptive order application filed by Hillview Investment Trust II. Fund Democracy argued that the SEC staff has exceeded its authority in issuing the exemptive orders, that a fund with only one subadviser should not be entitled to the exemptive relief, and that the conditions to the proposed exemptive order were inadequate. The Commission rejected these arguments, concluding that they had been resolved in the original order to Frank Russell. In light of the SEC’s determination that no hearing was necessary, it did not reach the issue whether Fund Democracy or Institutional Shareholder Services is an “interested person” entitled to request a hearing.

Mercer Bullard of Fund Democracy says that Fund Democracy will definitely appeal under section 43 of the 1940 Act, which provides that a party aggrieved by an SEC order may obtain a review of the order in a U.S. Court of Appeals, on the theory that the hearing request denial did not meet the “appropriate in the public interest” standard of 1940 Act Rule 0-5. Section 43 provides that the aggrieved party’s petition must be filed within 60 days after the entry of the SEC order and that the commencement of the proceeding will not operate as a stay of the SEC order unless the court specifically so orders.

Federal Register documents are available online (search for “page 35676”) at

Documents related to Fund Democracy’s hearing request are available on Fund Democracy’s web site (scroll down to “Multimanager Funds and Your Voting Rights”) at

Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.



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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

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