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BlackRock has joined the list of firms filing to adopt Vanguard’s ETF multi-share class structure, pitching the dual-class flexibility as bolstering ETFs’ asset base by yoking them to mutual funds within 401(k)s.
In a Wednesday filing with the Securities and Exchange Commission, the firm became the 33rd to apply for open-ended mutual funds to list ETF shares. The filing also seeks approval to list mutual fund shares of ETFs.
Sponsors including Fidelity, Franklin Templeton and T Rowe Price are among the others also to have petitioned the SEC to adopt the multi-class structure, which until May of last year was off-limits because of a now expired Vanguard patent. Major providers yet to file include Capital Group, Invesco, JPMorgan and State Street Global Advisors.
Among other benefits, BlackRock’s filing stresses the dual classes’ ability to build its ETFs’ scale by being melded with mutual funds in workplace retirement plans, thus sharing the benefits of a far bigger investor base, such as increased liquidity and lower expenses.
“Many retirement or ‘401(k)’ plans do not offer ETFs to their plan participants because retirement plan administrators are often unable to accommodate investments with intraday trading, and so such retirement plan investors often invest in mutual funds,” the filing stated.
“If the relief sought by this application were granted, mutual fund shares offered by a fund could be made available to those retirement plan participants on those retirement plan platforms, which could be beneficial to both ETF class and mutual fund class shareholders of the fund.”
Other multi-class applicants have referenced retirement access in their filings, but only in passing. Fidelity’s filing, for instance, identifies the anticipated “investor base” for its dual-class funds as including employer-sponsored retirement plans.
BlackRock’s filing touts other uses for the structure, including cost efficiencies, increased scale and the accommodation of investor product preferences. The filing also addresses the commission’s telegraphed concerns over possible “cross-subsidisation”, or the potential for mutual fund class flows’ generating costs to be borne inequitably by ETF share class holders. Like previous filers, BlackRock proposes remedies including strict board oversight.
PGIA, the US division of Australia’s Perpetual, was the first to file for the relief, in February 2023. The SEC withdrew the application in April of this year because PGIA failed to respond to staff comments, forcing the firm to reapply. Dimensional Fund Advisors is next in line for the relief.
The SEC has yet to grant any of the requests.
https://www.ft.com/content/2eec1457-854d-49d0-b25f-cad23b3b7a06
