In February 2014, the Staff of the Division of Investment Management of the SEC published a Guidance Update regarding compliance with the aggregate fee condition in multi-manager fund exemptive relief. Exemptive orders granting relief from Section 15(a) of the 1940 Act permit a subadviser to serve a multi-manager fund under a contract not approved by fund shareholders, but still require approval of the primary advisory contract, as well as the aggregate advisory fee rate. The Guidance Update states that funds seeking multi-manager relief typically are structured under a “traditional” multi-manager model, in which the fund pays an advisory fee only to the primary adviser and the adviser pays the subadviser, or a “direct-pay” multi-manager model, in which the fund separately contracts with and pays each subadviser and the primary adviser. The Guidance Update notes the requirement that all new multi-manager exemptive applications, whether seeking relief for the “traditional” or “direct-pay” model, include an aggregate fee condition specifying that any new subadvisory contract or an amendment to an existing advisory or subadvisory contract that would result in an increase in the aggregate advisory fee rate will be submitted to fund shareholders for their approval.

The Guidance Update also provides guidance regarding whether the aggregate fee condition would be triggered for existing multi-manager orders for the direct-pay model. Specifically, the Guidance Update states:

  • Unless the rate that the fund pays under its primary advisory contract will be proportionately reduced by the subadvisory fee rate, a fund’s hiring of its first subadviser would require shareholder approval.
  • Shareholder approval generally would not be required when a fund replaces a subadviser with another subadviser whose rate is no higher than the rate of the subadviser being replaced.
  • Shareholder approval generally would not be required if a rate increase payable by a fund to an existing subadviser is accompanied by a corresponding rate reduction in the primary advisory contract.

The Guidance Update is available at