On June 22, 2016, the U.S. District Court for the Central District of Illinois issued an order granting the defendant’s motion to dismiss an excessive fee case brought under Section 36(b) of the 1940 Act against State Farm Investment Management Corporation (SFIMC) relating to five of the LifePath Funds, a group of target-date mutual funds advised by SFIMC. Each of the LifePath Funds invests all of its assets in a master portfolio that, in turn, invests its assets in a number of underlying funds. BlackRock Fund Advisors (BFA), an investment adviser that is not affiliated with SFIMC, serves as investment adviser to each master portfolio, and BFA or its affiliates serve as the investment adviser to most of the underlying funds in which the master portfolios invest.
In the complaint filed in July 2015, the plaintiffs alleged that the portion of the management fee SFIMC retains from the LifePath Funds is “so disproportionately large that it bears no reasonable relationship to the services rendered (if any) for that fee, and could not have been negotiated through arms-length bargaining.” The plaintiffs alleged that SFIMC does not provide day-to-day investment services, or investment guidance or policy direction in connection with daily portfolio management, to the LifeTime Funds, and that the non-advisory monitoring, oversight and other services SFIMC provides to the LifePath Funds are minimal and do not justify the fees retained by SFIMC.
In granting the defendant’s motion to dismiss, the District Court generally concluded that the plaintiffs’ allegations were merely “speculative assertions” not supported by actual facts. Among other things, the court found that the plaintiffs failed to present facts to support their assertions that the non-advisory services provided by SFIMC under the LifePath Funds’ management agreement did not merit the fees retained by SFIMC and that the board received inadequate information to fulfill its obligations to review and approve the management agreements.
The litigation was filed in the U.S. District Court for the Central District of Illinois under the name Ingenhutt et al. v. State Farm Inv. Mgmt. Corp., Case No. 15-cv-1303.