The one-of-a-kind fund structure that helped turn Vanguard Group into the second-largest ETF manager in the world may be about to get a lot less unique.
A multi-boutique asset manager has this week filed for permission to create ETFs as a share class of its U.S. mutual funds, aiming to replicate a blueprint that Vanguard has used exclusively for more than two decades.
In the simplest terms, that structure ports the famous tax efficiency of an ETF into the mutual fund, largely cleansing the latter of taxable gains. Outside of the industry it has received little attention, but Vanguard has used the design — entirely legally — to slash the capital gains reported by its funds for more than 20 years.
The Jack Bogle-founded firm has held a patent since 2001 that makes it difficult for competitors to replicate it — a protection that expires in May.
With the patent expiry looming, the fund industry has been rife with speculation over which firms might attempt to follow the Vanguard playbook. PGIA, the US-arm of Australian asset manager Perpetual Ltd., looks like one of the first.
In a filing dated Tuesday, it asked the Securities and Exchange Commission for an exemptive relief from current rules to add ETFs to the share classes of its actively managed mutual funds. That's slightly different to Vanguard, which has only ever used the structure in index-following funds.
If approved, the relief could potentially apply to 20 products with about $100 billion spread across PGIA's five US subsidiaries — Barrow Hanley Global Investors, J O Hambro Capital Management, Regnan, Trillium Asset Management, and Thompson, Siegel & Walmsley.
"Vanguard has 70 strategies and $2 trillion in assets" in its ETFs, said Robert Kenyon, COO of PGIA, in an interview at the ETF Exchange conference in Miami, Florida. "They're the only ones who can do this at the moment. So it does open up an opportunity that is attractive to the rest of the world" if PGIA is successful, he said.
Vanguard didn't respond to a request for comment.
