Delegation and Oversight of Liquidity Risk Management for Sub-Advised Mutual Funds

April 17, 2018
The Investment Lawyer

In planning for the implementation of liquidity risk management (LRM) programs, as required by new Rule 22e-4 (rule) under the Investment Company Act of 1940 (1940 Act), mutual fund complexes that include sub-advised funds will need to determine the appropriate role of sub-advisers in administering their LRM programs. The Staff of the Securities and Exchange Commission (SEC) recently issued guidance endorsing a range of possible roles for sub-advisers, from handling discrete responsibilities to being the primary administrator of a fund’s LRM program as a whole. Given this flexibility, fund management and boards should consider whether—and if so, how—they will allocate responsibilities for administering a sub-advised fund’s LRM program among the fund’s primary adviser, sub-adviser(s), other service providers, or a combination thereof. 

In this article, Stephen Bier, Brenden Carroll, Joshua Katz, Neema Nassiri and Patricia Leeson discuss the level of complexity in coordinating the LRM program across one or more of these entities, the use of other third-party service providers to provide analytical support for the LRM program, and the ability to exercise appropriate oversight of any delegated LRM program responsibilities.

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