(Bloomberg) — Dozens of drones were seen outside the Fontainebleau Hotel in Miami, Florida last week move slowly Across the night sky, the Bitcoin symbol is projected over one of the biggest ETF gatherings of the year.
But the annual internal exchange During the meeting, industry insiders were focusing on an event that could be more important to the $8.4 trillion business than the long-awaited launch of a spot Bitcoin ETF: regulatory approval of a new share class structure.
Compared to the boom-crash-boom of cryptocurrencies, which is something of a mystery — no one has rolled out drones to celebrate different investor categories like Grayscale Investments for its $23 billion Bitcoin fund.But the question remains whether the U.S. Securities and Exchange Commission will allow companies to replicate the fund model used exclusively by Vanguard Group for more than two years. decades It became a hot topic among industry participants.
For good reason. This structure would allow the ETF to be listed as a share class of a broader mutual fund, effectively bringing the tax efficiencies for which exchange-traded funds are known to the entire fund. Vanguard’s patent to prevent copycat funds expired in May. Now, the only hurdle is SEC approval.
Nate Geraci, president of advisory firm The ETF Store, said: “While spot Bitcoin ETFs are currently dominating the headlines, these products are a sideshow compared to the potential impact of multi-share class structures.”
Heavyweights including Fidelity, Morgan Stanley and Dimensional Fund Advisors are among the Regulatory agency inquiries Get permission to use a model that transfers the tax advantages of ETFs to trillions of dollars in mutual fund assets. It’s an enticing prospect for an industry seeking its next wave of growth after quadrupling in size over the past decade. There are currently more than 3,300 ETFs listed in the United States, and SEC approval could open the floodgates for more.
“If the SEC allows equity classes, especially active mutual funds, I think that would be huge for the ETF industry,” said Michael Venuto, chief investment officer at Tidal Financial Group. “There are 10,000 mutual funds. The idea that 20% of them would add ETF share classes is not crazy to me.”
Mutual funds have seen significant losses in assets in recent years as ETFs have grown in popularity. As a result, traditional asset managers find themselves fighting for share of an increasingly saturated ETF market. In Miami, each attendee received a gift bag filled with gifts from the likes of T. Rowe Price and Matthews Asia. The bag itself features the Hermès Federation logo.
Against this backdrop, Lara Crigger of data provider VettaFi said it’s obvious why mutual fund managers want a multi-share class structure.
“If they were able to launch ETFs as share classes for existing mutual funds, then mutual funds could use the ETF’s creation/redemption mechanism to get rid of stocks in their equity portfolios that have higher potential cap returns,” Krieger said. Fund investors will gain additional tax efficiencies without having to switch to other products, she said.
There is no deadline for the SEC to make a decision, and there is no guarantee that the regulator will approve further use of the structure. Regulators have raised concerns about conflicts of interest among mutual fund and ETF investors since approving Vanguard’s funds years ago.
Attendees also speculated that the SEC may want to “address issues surrounding its proposed rule changes.”swing pricing” — a liquidity mechanism based on the fund’s structure and objectives — before acting on applications to emulate Vanguard’s approach.
Issuers are likely to keep up the pressure. While ETFs have gained popularity with investors over the years, mutual funds still retain some advantages, such as their key role in the U.S. retirement system. The ability to launch ETF share classes of existing mutual funds rather than changing the structure entirely would give issuers the best of both worlds, said Douglas Yones of the New York Stock Exchange.
“If the SEC approves hybrid structures, there won’t be hundreds of ETFs coming to market,” said Yones, head of ETF products at the New York Stock Exchange. “There will be thousands.”
