Ropes Lawyers Offer Key Discussion Points on Converting Mutual Funds to ETFs

In a recent podcast, lawyers from Ropes & Gray discussed recent ETF exemptive relief and the  conversion of mutual funds to ETFs. The lawyers reviewed how fund sponsors contemplating a conversion may need to inform and advise fund directors on these conversions and suggested several crucial topics for management and boards to discuss, including:

  • The basis on which management finds that the conversion is in the best interest of the funds and, in the case of a merger, that existing shareholders will not be diluted as a result, consistent with 1940 Act requirements.
  • The structural differences between mutual funds and ETFs, especially the arbitrage mechanism and the creation and redemption processes.
  • The implications of the conversion for shareholders, including the costs of conversion and who will bear them, tax implications, the need for shareholders of the ETF to designate or establish a brokerage account in order to trade the ETF shares following the conversion transaction, and the timeline of the conversion, among several other factors.

The transcript of the podcast is available here.