Donohue Says That Fund Boards Should Consider Eliminating Expense Caps
Andrew Donohue, the presumptively outgoing Director of the SEC’s Division of Investment Management, suggested that fund boards should consider modifying or eliminating expense caps for funds that have seen an increase in expense ratios due to a decline in assets. When reviewing advisory contracts under 15(c), Donohue also advised fund boards to reconsider the previously-used peer group given declines in assets and the effect on expense ratios. Donohue more generally suggested that fund boards “consider carefully additional information or issues that may not have been present in previous reviews.”
OUR TAKE: We certainly support the concept that boards concern themselves with the profitability and sustainability of fund sponsors. However, it is rare for an SEC official to suggest increasing expense ratios.