One way to get ‘exemptive relief’ is to buy it.
Russell Investments’ plan to acquire Reno, Nev.-based ETF firm U.S. One Inc., the company behind the One Fund ETF (NYSEArca: ONEF), amounts to a way of getting around its protracted efforts at gaining permission from regulators to launch its own line of ETFs, a number of ETF industry sources said.
The One Fund ETF is a fund-of-funds ETFs that gives investors access to 95 percent of the world’s stock markets. The ETF was made possible by exemptive relief that U.S. One obtained from the Securities and Exchange Commission to launch actively managed equity or fixed-income fund-of-funds ETFs composed of U.S.-based funds.
Exemptive relief filings grant ETF firms exception to sections of the Investment Act of 1940 and are just the first step in the path to launching ETFs. While it often takes at least six to 12 months from the date of the initial filing for a company’s first ETF to hit the market, Russell’s efforts at obtaining exemptive relief have dragged on for more than a year and a half.
Sources speculated that Russell, which is huge in the indexing industry but doesn’t yet have any ETFs, was growing concerned that all the mutual fund firms that have filed for permission to offer ETFs in the past year might beat it to market—which would be the death knell to its ETF ambitions. It has filed for exemptive relief to offer both passively managed and actively managed ETFs.
“I don’t know where they are in the queue, but my guess is that they found out where they were and decided to make an acquisition in order to get to the front of the queue, which would be a good move,” said Richard Keary, president of Global ETF Advisors LLC, a New York-based firm that helps ETF companies bring products to market.
The one catch in such transactions, sources said, is that personnel from the acquired companies must continue to play important roles in their firms once they have been acquired. Indeed, Paul Hrabal, president and controlling owner of U.S. One, Inc., will work with Russell as a consultant to the ETF business, Russell said in a press release on Jan. 12. That basically makes the deal approvable at SEC, the sources said.
Apart from what it said in the press release, Russell officials weren’t immediately available to comment on the firm’s motivations for seeking to acquire Hrabal’s firm.
In the prepared statement, Jim Polisson, managing director of Russell’s global ETF business, said Russell sees the transaction as a means of becoming a credible competitor in the ETF space.
“Russell continues to build the infrastructure for viable and comprehensive ETF offerings,” Polisson said. “By acquiring U.S. One, we can more immediately leverage our proprietary research to extend the options available to investors and include ETFs in our suite of products that we deliver to the marketplace.”