The fate of the world's largest exchange-traded fund rests on the health of a group of twenty-somethings.
Thanks to a quirk in the legal structure used to set up the SPDR S&P 500 ETF Trust, known as SPY, more than $250 billion rests on the longevity of 11 ordinary kids born between May 1990 and January 1993.
Those children are now carving out careers in public relations, restaurants and sales, spread around the country from Boston and Philadelphia to Alabama and Utah. But none of the eight spoken to by Bloomberg News was aware of their role in investing history.
"Today was the first I heard about this," said Alexander Most, 27, who's about to start graduate school, studying education, policy and management. "Has it made me think about my mortality? Absolutely, in terms of projecting when this thing might end."
It all harks back to the arcane structure used to create SPY, the first U.S. ETF, in 1993. At the time, setting up the fund as a unit investment trust solved a practical problem.
Not only was it an established legal structure, it allowed the issuer to create fund units that resembled a company's shares. But as a consequence, it required a specified termination date.
So like many trusts, the fund was initially structured to expire in 25 years — in January 2018. It was subsequently amended to peg the fund to the lives of individuals, which extended its own life.
SPY as we know it will cease to be on Jan. 22, 2118, or 20 years "after the death of the last survivor of the eleven persons" — whichever occurs first. The structure doesn't provide those people with a financial interest in SPY.
At least eight of the 11 named in SPY's documents have a family connection to the American Stock Exchange, which structured the first ETF and was bought by NYSE Euronext in 2008.
For example, Most — the grad student — is the grandson of Nathan Most, one of the creators of SPY. State Street Corp. referred requests for comment on plans to deal with the fund's end to NYSE, which declined to comment.
