Grail Advisors, a boutique ETF sponsor that has had difficulty
attracting investors to its actively managed funds, has signed a
letter of intent to be acquired by an unnamed party, according to a
filing with Securities and Exchange Commission.
The company said in the filing that if the planned transaction
falls through or, if Grail cannot otherwise raise capital, all of
its ETFs could be liquidated. Even if a transaction is completed,
some of the ETFs might be liquidated anyway, depending on the
buyer's plans, the filing said.
Potential terms of the deal weren't disclosed, and an official
at San Francisco-based Grail declined to elaborate.
The firm shut two funds last summer and ended 2010 with $20.5
million under management in its remaining five ETFs, according to
data compiled by IndexUniverse.com. It attracted just $10.6 million
in new inflows last year, reflecting a general reluctance among
investors to embrace actively managed equity ETFs. All of Grail's
ETFs are actively managed.
"Grail Advisors, LLC has entered into a letter of intent
concerning a transaction involving its ownership interests in order
to enable it to continue its operations, including paying its
future obligations under its fee waiver and expense reimbursement
agreements," the company said in a Jan. 5 filing with the SEC.
The company's remaining funds and their assets as of Jan. 6,
2010 Flows Into Grail's Five Remaining
||AUM Period End
||Grail American Beacon Large Cap Value
||Grail McDonnell Core Taxable Bond
||Grail McDonnell Intermediate Municipal Bond
||Grail RP Focused Large Cap Growth
||Grail RP Growth
If and when the deal goes through, shareholders in each of these
ETFs will be required to approve the investment manager's continued
role as advisor, according to the filing. That's standard operating
procedure in any fund company merger.
All of the iShares ETFs, for example, underwent such votes
without a hitch after the world's biggest ETF company was acquired
But Claymore wasn't so lucky after it was acquired by Guggenheim
in October 2009. In an ETF industry first, one of its funds, the
Claymore Shipping ETF (NYSEArca SEA) had to be shuttered because
the company failed to obtain a quorum of required votes. A new
version of the fund, which has since been renamed the Guggenheim
Shipping ETF (NYSEArca:SEA), relaunched in June of 2010.
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