Eaton Vance Acquires Gastineau ETF Firm

November 22, 2010

Eaton Vance, looking to roll out nontransparent actively managed ETFs, acquires patents from a firm co-founded by Gary Gastineau.

Eaton Vance, the Boston-based firm known largely for its lineup of closed-end funds, acquired Managed ETFs LLC, a firm co-founded by longtime exchange-traded fund industry figure Gary Gastineau that owns a number of patents that could help Eaton Vance break into ETFs. Terms weren’t disclosed.

The patents could provide the foundation for Eaton Vance for more efficient trading of both index-based and “nontransparent” actively managed ETFs, Eaton Vance said today in a press release. The fund company, like many others, began laying the groundwork to offer actively managed ETFs. We wrote about its plans in a story in March titled “Eaton Vance Files To Enter ETF Market.”

"Facilitating more robust ETF trading and expanding the scope of the ETF market to encompass nontransparent, active strategies is a vision we share with the principals of Managed ETFs," Eaton Vance Chief Executive Officer Thomas Faust said in the press release.

The issue of being able to offer nontransparent active ETFs is a central concern of some of the actively managed mutual fund firms that have begun the regulatory process to be able to offer ETFs. They appear to want to get into the growing ETF market, while preserving one of the cornerstones of active management, namely not having to disclose portfolio holdings daily as ETFs must.

iShares, the world’s biggest ETF company, parted ways with such companies last week, saying in an updated regulatory filing that any actively managed ETFs it rolls out would be transparent.

Gastineau, who founded Managed ETFs with Todd Broms, remains the principal at a separate firm, ETF Consultants LLC, that’s based in New Jersey. It provides ETF consulting services to issuers, exchanges and other markets, market makers, research organizations and investors.

A Place For Nontransparent Active ETFs

Gastineau told he takes the rapid expansion of the ETF industry seriously, and that, moreover, many mutual fund companies that specialize in active management also recognize that big changes are happening and that they will have to adapt to them. The first ETF was launched in 1993, and now almost $1 trillion is in more than 1,000 ETFs.

“What you see here is that there is going to be a very dramatic change, and you can either lead the charge or be buried under it,” Gastineau said in a late-summer telephone interview. “If someone is going to cannibalize your business, it may as well be you.”

“Most people I talk to are clearly looking forward to this. It’s clearly the next big thing. They recognize the superiority of the ETF vehicle, and they need to find a way, I guess you would say, to get with it,” he added.

Gastineau was also emphatic that many firms aren’t pleased with the limited function that active ETFs have, and are looking for ways to address those perceived shortcomings.


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