SEC Filing: Grail At Brink; May Be Acquired

January 07, 2011

Grail says it has a potential buyer in the wings; failure could lead to the liquidation of all its ETFs.

Grail Advisors, a boutique ETF sponsor that has had difficulty attracting investors to its actively managed funds, has signed a letter of intent to be acquired by an unnamed party, according to a filing with the Securities and Exchange Commission.

The company said in the filing that if the planned transaction falls through or if Grail cannot otherwise raise capital, all of its ETFs could be liquidated. Even if a transaction is completed, some of the ETFs might be liquidated anyway, depending on the buyer’s plans, the filing said.

Potential terms of the deal weren’t disclosed, and an official at San Francisco-based Grail declined to elaborate.

The firm shut two funds last summer and ended 2010 with $20.5 million under management in its remaining five ETFs, according to data compiled by It attracted just $10.6 million in new inflows last year, reflecting a general reluctance among investors to embrace actively managed equity ETFs. All of Grail’s ETFs are actively managed.

“Grail Advisors, LLC has entered into a letter of intent concerning a transaction involving its ownership interests in order to enable it to continue its operations, including paying its future obligations under its fee waiver and expense reimbursement agreements,” the company said in a Jan. 5 filing with the SEC.

The company’s remaining funds and their assets as of Jan. 6, 2011 were:

2010 Flows Into Grail's Five Remaining ETFs
Ticker Name Net Flows AUM Period End Total Turnover
GVT Grail American Beacon Large Cap Value -1.46 1.59 10.86
GMTB Grail McDonnell Core Taxable Bond 2.49 2.53 15.59
GMMB Grail McDonnell Intermediate Municipal Bond 2.48 2.48 23.53
RWG Grail RP Focused Large Cap Growth 5.68 9.26 17.08
RPX Grail RP Growth 1.38 4.67 9.58

If and when the deal goes through, shareholders in each of these ETFs will be required to approve the investment manager’s continued role as advisor, according to the filing. That’s standard operating procedure in any fund company merger.

All of the iShares ETFs, for example, underwent such votes without a hitch after the world’s biggest ETF company was acquired by BlackRock.

But Claymore wasn’t so lucky after it was acquired by Guggenheim in October 2009. In an ETF industry first, one of its funds, the Claymore Shipping ETF (NYSEArca SEA), had to be shuttered because the company failed to obtain a quorum of required votes. A new version of the fund, which has since been renamed the Guggenheim Shipping ETF (NYSEArca: SEA), relaunched in June of 2010.


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