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This page was last updated on March 4, 2001. Articles by Fund Democracy: Archives A Voting Rights Issue That Hits Home for Investors, TheStreet.com (Feb.13, 2001). View the full text of this article. (See follow-up article Voting Rights II: How Funds Raise Fees Without a Shareholder Vote, TheStreet.com (Feb. 15, 2001)(article abstract)) Abstract: Mutual fund shareholders have the legal right to vote on their funds' advisers and subadvisers. But what the law giveth, the Securities and Exchange Commission taketh away. Over the past six years, the SEC has permitted dozens of so-called multimanager funds to fire and hire fund subadvisers without shareholder approval. What began as a reasonable accommodation of an unusual management structure has become a major loophole exploited by dozens of funds. These funds make no pretense of following a bona fide multimanager strategy, yet the SEC allows them to replace a fund's portfolio manager without consulting shareholders. According nonpublic SEC letters, multimanager voting exemptions were intended for managers that followed a bona fide multimanager strategy similar to that employed by Frank Russell, the first manager to obtain an exemption. Frank Russell manages 24 multimanager funds that employ 109 subadvisers. All but three of the funds (all money market funds) have had at least two subadvisers from inception, and seven of the 24 funds have had seven or more subadvisers. The funds have hired 65 new subadvisers and fired 36 subadvisers since 1996. In contrast, of the 111 "multimanager" funds offered by Equitable and American Skandia, only three have ever employed more than one subadviser. These funds operate no differently from single-manager funds, with a single adviser making all investment decisions, yet their shareholders have no say in who manages the fund. The growing trend toward using subadvisers, especially among variable annuity providers, and the increasing numbers of exemptions granted by the SEC, threaten to effectively repeal shareholders' right to decide who manages their money and how much they are paid. |