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SEC Grants No-Action in Sub-Adviser Fee Split Alteration

The SEC’s Division of Investment Management granted no-action relief to a fund seeking to alter a fee split in a sub-advisory agreement without a shareholder vote. RiverNorth Capital Management had requested the no-action relief to change the advisory arrangement for fees paid to sub-adviser Doubleline Capital.  RiverNorth sought to amend the agreement to compensate Doubleline based upon Doubleline’s gross assets under management, rather than the net assets under management after RiverNorth had deducted its own operating expenses. While the change would not increase the overall fees paid by the fund, Doubleline would receive a greater proportion of the fees. The fund’s board (including a majority of independent directors) had approved the changes.

According to the letter, the SEC granted the requested no-action relief based on four factors:

·         the overall fees charged to the fund and its shareholders did not increase,

·         the nature and level of services provided to the fund by RiverNorth and Doubleline would not decrease,

·         the sub-advisory agreement would be amended in compliance with all provisions of Section 15 of the 1940 Act except the shareholder vote requirement,

·         and the Fund would provide appropriate notice of the change to shareholders.

The no-action letter is very similar to relief issued to Invesco in 1997, except that the change in fees in that instance benefited the adviser at the expense of the sub-adviser.