FR 2021-02372

The document from the Federal Register provides a notice from the Securities and Exchange Commission (SEC) about an application by The Advisors' Inner Circle Fund and Pathstone Family Office, LLC. These entities have requested an exemption from certain regulations under the Investment Company Act of 1940. Specifically, they seek permission to hire and replace sub-advisers without requiring shareholder approval. Additionally, they seek relief from certain disclosure requirements regarding fees paid to these sub-advisers. This aims to streamline operations by minimizing delays and costs that arise due to the current regulatory framework.

General Summary

The proposal outlined in this document allows investment advisers greater flexibility in managing their sub-advisers. Typically, shareholder approval is required for such changes, ensuring transparency and accountability to those who have invested in the funds. The applicants argue that the approval process can lead to unnecessary delays and expenses, thus seeking a more efficient approach.

Significant Issues and Concerns

A noteworthy issue with this proposal is the potential reduction in transparency and oversight. Removing the necessity for shareholder approval could limit investors' ability to understand and influence decisions regarding who manages their investments. This change might make funds' operations less visible to investors. Additionally, the request for exemption from certain disclosure requirements could result in shareholders not fully understanding the fees involved or the financial arrangements between advisers and sub-advisers. Such a lack of clarity may prevent investors from making fully informed decisions about their investments.

Broad Public Impact

For the public at large, this proposal represents a shift towards less direct oversight in certain financial transactions associated with investment funds. It may set a precedent for streamlining bureaucratic processes at the cost of reducing shareholder engagement and transparency. Investors may need to rely more on the fiduciary responsibilities and assurances of the investment advisers managing the funds.

Impact on Specific Stakeholders

For entities such as The Advisors' Inner Circle Fund and Pathstone Family Office, LLC, this change could result in operational efficiencies and cost savings. It could allow these organizations to respond more swiftly to market changes by adjusting sub-adviser roles without the inherent delays of obtaining shareholder approval. This might enhance their ability to optimize investment strategies and improve fund performance.

On the other hand, the potential decrease in transparency might negatively impact shareholders, who could find it harder to track where and how their money is being managed. This change might concern those who prioritize oversight and accountability in the management of their investments.

Overall, while this proposal could streamline certain processes for investment management companies, it also raises questions about transparency and control for individual investors. As these changes are considered, stakeholders will need to weigh the benefits of operational efficiency against the need for oversight and accountability in financial management.

The document under review outlines an application submitted to the Securities and Exchange Commission (SEC), involving the Advisors' Inner Circle Fund and Pathstone Family Office, LLC. This application seeks various exemptions under the Investment Company Act of 1940, particularly concerning how fees and sub-advisory agreements are managed.

The primary financial aspect in this notice is the request for an exemption that allows the Adviser to enter into and amend sub-advisory agreements without obtaining shareholder approval. This means that the Adviser could change the sub-advisers who help manage a fund's portfolio without the direct input usually required from those who have invested in the fund. Importantly, the notice also seeks to modify the requirements for disclosure of fees associated with these sub-advisory agreements.

Financial Disclosure

The application proposes adjustments in how fees are disclosed to investors. The Aggregate Fee Disclosure is central to this discussion, specifying that the fund may report:

• Aggregate fees paid to the Adviser and any Wholly-Owned Sub-Adviser.
• Aggregate fees paid to Non-Affiliated Sub-Advisers.
• Fees paid to each Affiliated Sub-Adviser.

These disclosures would be presented both as dollar amounts and as a percentage of the fund's net assets. Such adjustments are sought to streamline fee negotiations between the Adviser and the sub-advisers, possibly allowing for more favorable terms that could benefit the Sub-Advised Funds.

Relation to Identified Issues

The financial aspects outlined relate directly to concerns about transparency and oversight. By potentially reducing the requirement for shareholder approval in the hiring and replacement of sub-advisers, investors might be left with less oversight on decisions that can affect their investments. The exemption from detailed disclosure requirements could further obscure investors' understanding of where and how their money is being spent in terms of sub-advisory fees.

The complexity of these financial arrangements could be confusing for average investors, especially when considering the nuanced distinctions between different kinds of sub-advisers, such as Wholly-Owned, Non-Affiliated, and Affiliated Sub-Advisers. Understanding these relationships and how they influence fee structures is crucial for investors who wish to grasp the full financial implications of having a sub-adviser manage their fund's assets.

In conclusion, while the application suggests potential efficiencies in fund management, it also raises questions about how these financial arrangements might limit transparency and investor oversight in practice.