Last week, Delta Data hosted a collection of clients and mutual fund industry leaders in Boston for a roundtable discussion that included some of the investment community’s most influential contributors.

The invitation-only annual forum on March 28, 2023, featured an agenda that included in-depth discussions and insightful presentations addressing the key forces shaping the current state of mutual fund management and operations today.

Participants in the Roundtable featured a range of clients and financial industry experts, including representatives from top US financial services organizations. Representatives from the Investment Company Institute (ICI) and the Depository Trust and Clearing Corporation (DTCC) were also in attendance to offer insight and contribute to the series of conversations.

Main topics of interest included candid conversations moderated by leaders from Barrington Partners, Charles Schwab, and T. Rowe Price surrounding onboarding CITs and SMAs, non- and semi-transparent ETFs, swing pricing, and alternatives to the 4PM hard close, as well as discussions on ESG data and the potential impacts of the current banking situation.


CITs and SMAs

The topic of onboarding CITs and SMAs generated a lot of activity throughout the event, with attendees addressing pain points for mutual fund operations departments that include contract and participation agreements and how to build operations teams for the onboarding process. Mutual funds are more defined, whereas CITs are like the “wild, wild west” – everybody has their own ways. The lack of standardization around the documents and the process was big discussion point for the group.

In this session, moderated by representatives from Charles Schwab and T. Rowe Price, participants stressed that each fund company is different. Account setup is very manual, but once setup is complete, they reported that things appear to work well. Other companies do have omnibus accounts in CITs, which they report cuts down on gatekeeping but creates other issues around transparency.

There was also more pushback on the “in kind” transactions, where an “ACATs-like” function is needed for converting funds to CITs. Companies, instead, emphasized the need for a transaction type that does not move money, just serves as an exchange. That type of transaction does not exist today, according to the DTCC.

The DTCC discussed additional challenges around documents, where there are documents that exist for 40 Act funds but not for CITs. They questioned whether firms are open to uploading the documents that are sometimes very specific and may contain sensitive information.

As far as SMAs, attendees emphasized in conversations how those contracts are more time-consuming.


Non- and Semi-Transparent ETFs

Barrington Partners moderated a discussion on non- and semi-transparent exchange-traded funds (ETFs), where it was highlighted that the approach to ETFs is more of a process as opposed to reliance on a structure. According to the panel an important aspect of ETFs is they allow for more control over when capital gains are recognized.

When converting mutual funds to ETFs, participants addressed how tax issues arise when converting to other structures, which may trigger the gains/losses. The group noted it gets more difficult when merging non-corporate.

As far as the non-transparent component, the operational process is significantly different than regular ETFs. Non-transparent ETFs only have to report at certain intervals, whereas regular ETFs have daily reporting requirements. Only a few companies have the infrastructure to accommodate and facilitate the onerous non-transparent operational process, which is why not many are engaging in that area currently. This will be an interesting space to watch as infrastructure continues to evolve.

The DTCC addressed the process around creating ETFs, wherein fund companies need to go create ETFs and get them registered. A secondary market product, treated like an equity, does not flow through mutual fund processes. They noted that products come to fruition when launched by market request. The process for this will get more efficient, but as with anything that is evolving, very few players have the end-to-end capabilities. The panel felt like additional regulation is still needed.

This is a review of several of the significant topics discussed at this year’s Delta Data Roundtable. Watch out for future posts that expand on some of the other topics that attendees dove into as we continue to elaborate on some of the insights shared.

This annual roundtable is just one of many ways Delta Data seeks to engage clients and facilitate industry thought leadership while reinforcing Delta Data’s commitment to serve our clients. These roundtables are part of an industry-leading, personalized, and consistent client experience across all touchpoints.

Contact us to learn more about Delta Data’s client-centric approach.