Directors of actively-managed exchange traded funds will be required to combine the talents of a regular ETF director and mutual fund director. The Securities and Exchange Commission issued orders last month for the funds to launch and it has already approved applications for actively managed ETFs from Bear Stearns Asset Management, PowerShares Capital Management, Barclays Global Investors and WisdomTree Investments.
Active ETF directors will have similar regulatory oversight responsibilities as other directors, such as the 15(c) process and ensuring proper policies and procedures are in place. But unlike a regular ETF director, whose main job beyond this is to look for deviation errors in buying index securities, active ETF directors will have to worry about evaluating manager performance, investment strategy and implementation. "Directors will have to adapt to this," said Jay Baris, partner at Kramer Levin in New York. "It will be a learning process."
These boards must ensure management is adhering to investment guidelines, oversee stock exchange issues and make sure compliance policies and CCOs are up to speed so there are no violations of the exemptive orders of the SEC. Directors overseeing active ETFs will also have to determine how to compare the fund's fees since ETFs typically have low fees while the presence of an active manager typically brings about higher fees.