BNY Mellon s Turnkey Mutual Fund Solution Designed for organizations interested in launching their own funds. FundVantage Fund Family
Table of Contents Why Launch a Mutual Fund? 1 Fund Start-Up Services 2 Stand-Alone vs. Turnkey Solution 3 A Turnkey Solution The FundVantage Trust 4 Mutual Fund Expense Model 5 Turnkey Solution Timeline 8 Turnkey Solution Responsibilities 9 Summary 12
1 // FundVantage Fund Family BNY Mellon s Turnkey Mutual Fund Solution 1 Why Launch a Mutual Fund? Money managers launch mutual funds for various reasons. Whether the goal is to diversify investment offerings for clients, broaden distribution opportunities, embrace a new business strategy, or for some other purpose, setting up and maintaining a mutual fund can be a complicated process. Often the fund investment advisor launches the new fund. Questions an investment advisor might consider before deciding to launch a new mutual fund include: What is my investment strategy and process? What are my business goals? How do I plan on raising assets? How will my fund differ from others? When do I want to complete the fund launch? How much does it cost to start a new fund? What is my breakeven point? How big do I want the fund to be? What distribution channel(s) will I use? Can I service the fund in-house or will I outsource? Once a company has made the decision to launch a mutual fund, a well-defined plan must be chosen to drive the idea toward a successful launch on time and within budget in a competitive market. FundVantage streamlines that process for the investment advisor or sponsor. BNY Mellon s turnkey solution is designed for investment advisors who typically do not have sufficient scale to start their own fund. FundVantage, a 1940 Act series trust, empowers an investment advisor to launch a fund(s) more quickly and less expensively than creating a fund from scratch. The portfolios within FundVantage gain economies of scale that allow them to compete more effectively against their larger counterparts. FundVantage is an ideal solution for investment advisors and sponsors who are interested in managing investment monies and distributing product, and would prefer to outsource most of the fund oversight, administrative, processing, and regulatory support functions to a team of experienced service providers, as well as a majority of independent trustees. 1 FundVantage is a separate legal entity that is not owned by or under common ownership with BNY Mellon.
2 // FundVantage Fund Family Fund Start-Up Services While creating a new mutual fund can be a costly, laborintensive endeavor, FundVantage s consistent approach can help provide a smooth, cost-effective start-up. There are generally two options for starting a fund: a stand-alone legal entity or a turnkey solution. Neither structure is inherently superior and each has its own merits. This document focuses on the turnkey solution and references some differences between the turnkey solution and a stand-alone structure. Stand-Alone Legal Entity Solution You have the option of establishing and operating your fund as a stand-alone entity. In this capacity, you will be responsible for proposing constituencies (parties) that support and operate the fund, including the Board of Trustees, chief compliance officer, fund counsel, independent public accountant, fund accounting agent and administrator, transfer agent, custodian, and principal underwriter, as shown in Figure 1a on page 3. Turnkey Solution You also have the option of establishing and operating your fund with a turnkey solution. This solution lies within the FundVantage fund family, 2 where many fixed expenses, including insurance, Trustee, and audit fees as well as certain legal expenses not attributable to specific FundVantage funds are defrayed being borne by each Fund on a pro-rata or other appropriate basis, determined by the Board of Directors. BNY Mellon has been approved to provide the accounting, administration, transfer agency and custodial services; Foreside has been approved to serve as the principal underwriter for the fund, as shown in Figure 1b. This means you have a complete solution for start-up and ongoing operational support. Finally, there is no need to secure the $100,000 in seed money or file a new registration statement as required by the Securities and Exchange Commission (SEC) for a new stand-alone fund company. Instead, BNY Mellon, under the supervision of fund counsel, will work with you to draft a proposed amendment to FundVantage s current registration statement describing the fund(s) you plan to offer. BNY Mellon s regulatory administration group, in conjunction with fund counsel, then coordinates the filing of the registration statement. 2 The establishment of a new fund and approval of a new investment advisory agreement is subject to approval of the FundVantage Board of Trustees, which approval cannot be guaranteed. Setting up a new fund also involves additional steps and considerations, and this document is not intended to be a complete guide to establishing a new fund.
3 // FundVantage Fund Family Stand-Alone vs. Turnkey Solution To the right is a depiction of some differences between the stand-alone solution versus the turnkey solution. With the stand-alone solution, the investment advisor is generally tasked with obtaining or sourcing all services, subject to Board approval. The turnkey solution is designed to package a majority of the required services with predetermined experienced, industryleading providers.* Figure 1a: Stand-Alone Solution Administrator/ Accounting Agent Custodian Transfer Agent Principal Underwriter Board of Trustees Fund Management Independent Public Accountant Chief Compliance Officer Investment Advisor Fund Counsel Fund Investment advisor provides or outsources, subject to Board approval Investment advisor provides Sponsor appoints Board at inception Figure 1b: Turnkey Solution through FundVantage Board of Trustees Chief Compliance Officer Administrator/ Accounting Agent Transfer Agent Fund Management Investment Advisor Custodian Principal Underwriter Independent Public Accountant Fund Counsel FundVantage FundVantage turnkey solution Investment advisor provides Board is already in place * Board approval required.
A Turnkey Solution The FundVantage Trust The turnkey solution permits the advisor to focus on its core competency of asset management and shifts responsibility for the establishment, servicing, and corporate governance to FundVantage Trust, a registered, open-end series fund company operated out of Wilmington, Delaware as a Delaware Statutory Trust. The Turnkey Solution Responsibilities section of this document contains detailed descriptions and highlights responsibilities of the turnkey solution players, including: Board of Trustees Chief compliance officer Investment advisor Administrator/accounting service provider Transfer agent Custodian Independent public accountant Fund counsel Principal underwriter Fund management Advantages of the FundVantage Fund Family Enjoy the following benefits when creating your fund within FundVantage: Quick start-up. Funds are usually effective within 75 days of filing with the SEC Experienced professionals. Board of Trustees, chief compliance officer, fund counsel, independent auditors, and professional back-office support with extensive experience servicing mutual funds Already-approved and filed organizational documents. Declaration of Trust, bylaws, code of ethics and certain service agreements Common expenses. Certain expenses are defrayed being borne by each Fund on a pro-rata or other applicable basis, which may help you reach a profitable breakeven point more quickly, reducing fee waivers and expense reimbursements
5 // FundVantage Fund Family Mutual Fund Expense Model Annual fund operating expenses reflect the costs of operating a fund. These expenses are deducted from fund investment income before earnings are distributed to shareholders. Within the turnkey solution, certain common expenses incurred for all of the FundVantage funds (such as trustee and professional fees) are charged to all funds in proportion to their net assets in the FundVantage complex, or in such other manner as the Board of Trustees deems fair or equitable. Certain fund- specific expenses and fees, including investment advisory and administration fees, are charged directly to a specific fund, and are not allocated to other funds in the complex. Figure 3 on page 7 notes how expenses are allocated within the turnkey solution. The chart below reflects typical fund expense considerations. The advisor is paid an advisory fee for managing the fund s investment portfolio, which is a fund expense. You may also propose a 12b-1 plan to pay for certain distribution expenses. Advisory, distribution, and other expenses, as listed on the next page, would add up to the fund s gross expenses. The fund s gross expenses in its initial stages of operation may exceed the targeted expense ratio for the type of fund you plan to offer. You may wish to establish an expense cap to maintain a competitive expense ratio. This cap may cause reimbursement of fund expenses, which will result in a partial or complete waiver of advisory fees and reimbursement until assets grow to a sufficient level to fully absorb all fund expenses. 3 Figure 2: Mutual Fund Expense Model Chart Investment Advisory Fee Distribution (12b-1) Expense Other Expenses Gross Fund Expenses Investment Advisor Waiver/Reimbursements Net Fund Expenses 3 BNY Mellon cannot guarantee that assets will grow to a sufficient level to fully absorb all fund expenses.
6 // FundVantage Fund Family The following expenses exist for either the stand-alone or turnkey solution. Following each expense is an overview of those fees. Investment advisory expense components: The investment advisor s fee for managing the fund s portfolio and providing related services. The advisor may elect to retain a third party to sub-advise the portfolio. The sub-advisory fee would typically be paid by the advisor out of its advisory fee. Distribution and shareholder service fee (12b-1) (optional): A fee may be deducted from fund assets to compensate the underwriter and/or financial intermediaries for providing distribution services and/or services to shareholders in connection with the maintenance of accounts. In addition, the 12b-1 fee may be used to pay for additional marketing and distribution expenses. If the fund does not have a 12b-1 plan, then the cost of the underwriter becomes an investment advisor expense. Other expense components: 4 Fund-specific expenses (Comprehensive Services): Administration/accounting Regulatory administration Transfer agency Custody Common expenses: Legal (with the exception of special projects specific to a particular fund) Board of Trustees Insurance Chief compliance officer Other fund-specific expenses: Shareholder prospectuses and annual and semiannual shareholder reports Audit fees, which are generally lower than what an individual fund can negotiate as a stand-alone entity Printing, postage, and handling Federal and state regulatory fees (i.e. SEC, state Blue Sky) Other miscellaneous fees Advisor fee waivers/ reimbursements (optional): What you waive or relinquish of your advisor fee or pay into the fund to achieve a certain net expense ratio. Net expenses: Total net fund expenses paid by the fund. 4 The expenses shown are meant to depict the manner in which they are absorbed by FundVantage. Expenses in a stand-alone fund may be absorbed by the fund differently.
7 // FundVantage Fund Family Figure 3: Turnkey Solution Expense Allocations Board of Trustees Chief Compliance Officer Administrator/ Accounting Agent Transfer Agent Fund Management Investment Advisor Custodian Principal Underwriter Independent Public Accountant Fund Counsel (excluding special projects) FundVantage BNY Mellon s comprehensive servicing expenses unique to each fund Common expenses Advisor s fees charged directly to the fund The underwriter/distributor costs are not a fund expense unless specifically covered in a 12b-1 plan
Turnkey Solution Timeline The timeline to launch a fund within the turnkey solution is typically faster than launching a fund as a new stand-alone legal entity. The FundVantage fund complex is currently established and operational, and its organizational documents have been filed. Your fund s prospectus and statement of additional information will be developed based on a standard template that is consistent for all funds within FundVantage. However, your portfolio s prospectus and statement of additional information will be customized to include your fund s particular investment strategies, advisor information, and contact details, among other sections, and will be designed and printed as though it were a stand-alone portfolio with your firm s branding and logo.
9 // FundVantage Fund Family In comparison, when establishing a new fund within a stand-alone legal entity, the legal and organizational structure must first be developed. Within this structure, the appropriate organizational documents must be created and then filed for incorporation. The fund s prospectus and statement of additional information must be drafted from scratch and filed with the SEC. These factors alone can delay the launch of the fund. These are only a few of the differences between the two solutions that can impact the timeline for launching a new fund. See Figure 4 below for a projected new fund launch timeline within the turnkey solution. Figure 4: Projected Turnkey Solution Launch Timeline through FundVantage Presentation to the FundVantage Board of Trustees to obtain authorization for filing SEC-required new fund registration statement amendment The drafting and internal approval of Form N-1A Amendment Board approval of Investment Advisory and other Service Provider Agreements The filing of Form N-1A Amendment with SEC SEC reviews and comments within 75 days of filing Fund becomes effective with SEC and operational Days 0 30 45 120
10 // FundVantage Fund Family Turnkey Solution Responsibilities The following explains each party and highlights its responsibilities in the launch and daily operation of the fund within the turnkey solution. Board of Trustees The FundVantage Trust has in place a Board of Trustees who oversee the fund s activities. The Board is charged with duties of care and loyalty, approving policies and procedures designed to address the fund s compliance with federal securities laws, and undertaking oversight and review of the fund s performance. In addition, the Board is responsible for reviewing and approving the arrangements with the fund s investment advisors and other service providers, including BNY Mellon. The Board has ultimate responsibility for decision-making regarding FundVantage Trust. Chief Compliance Officer The chief compliance officer (CCO) implements and monitors the Trust s compliance program. The CCO reviews the Trust s compliance policies and procedures; analyzes compliance issues for the fund; and interfaces with the Board of Trustees, management, investment advisors, auditors, legal counsel, and service providers. The current CCO is selected by, and reports to, the Board of Trustees. The CCO is an experienced investment management company attorney, has a current CPA license, and is a member of the ICI s chief compliance officer subcommittee. Investment Advisor The advisor manages the fund s assets in accordance with the fund s investment objectives and policies. By choosing FundVantage, the investment advisor can focus primarily on managing the investment portfolio and raising assets while outsourcing other responsibilities related to servicing the fund. Administrator/Accounting Service Provider Typically the investment advisor or an unaffiliated third party provides administrative services to a standalone fund. Under the turnkey solution, the unaffiliated fund administrator/ accountant service provider is BNY Mellon. With a successful history of servicing 1940 Act registered mutual funds, BNY Mellon dedicates an entire team to FundVantage Trust. Under this approach, a relationship manager is appointed and oversees a dedicated team of service professionals. This relationship manager is accountable for delivering client satisfaction and staying attuned to FundVantage s needs. The comprehensive array of services provided by BNY Mellon includes: Fund accounting and recordkeeping BNY Mellon maintains fund accounting records in accordance with the 1940 Act record keeping requirements; prepares fund balance sheets and statements of operations; calculates expense accruals, net income, capital gains/ losses, and dividend distributions. In addition, BNY Mellon reports net asset value and income factors to NASDAQ and electronically communicates statistical data to reporting services. Financial and regulatory administration Subject to the terms, conditions and limitations of the relevant services agreement and the oversight of the Fund Council, BNY Mellon prepares and files required forms with the SEC, prepares annual and semi annual reports and registration statements, and coordinates the printing, filing, and mailing of each. BNY Mellon prepares and coordinates board materials and administers regular and special meetings. BNY Mellon also assists in the development of proxy materials and monitors compliance with each state s Blue Sky laws. Tax services BNY Mellon prepares wash sale analyses and calculates the dividend distributions seeking to ensure that income and net capital gains are distributed in compliance with Subchapter M and excise tax rules. BNY Mellon also prepares and files federal, state, and excise tax returns and obtains tax identification numbers for funds, as well as calculates and monitors foreign withholding taxes and tax reclaims.
11 // FundVantage Fund Family Transfer Agent A transfer agent maintains records of shareholder accounts. With over 30 years of experience in offering a full range of customized mutual fund recordkeeping and shareholder services, BNY Mellon ranks among the nation s top providers of transfer agent services for mutual fund complexes and serves as the fund s transfer agent. BNY Mellon handles all types of transactions related to a mutual fund shareholder account. From reviewing new applications to processing dividend and capital gain distributions and mailing certain year-end tax and statement information, BNY Mellon offers full transfer agency support to the FundVantage Trust. Custodian The custodian, which is responsible for safekeeping the fund s assets, maintains the fund s securities and cash, which are segregated from the custodian s own securities. The custodian is responsible for recording all monies that flow through the fund. BNY Mellon serves as FundVantage s custodian. BNY Mellon maintains daily cash activity, processes trade instructions, disburses fund expenses and payments, and produces a complete record of transactions and asset activity. BNY Mellon also facilitates timely notification and response for corporate actions, offering web-enabled capabilities for ease of tracking and response. Independent Public Accountant Mutual funds must publish annual financial statements audited by independent public accountants. The independent public accountant audits the fund s financial statements, reviews the fund s systems of internal controls and procedures, and provides professional accounting opinions. A global independent public accounting firm has been retained by the Board of Trustees and is in place for FundVantage. Fund Counsel Fund counsel provides legal counsel to the fund, represents the fund in legal matters, and interacts with the SEC on fund filings and regulatory matters. Fund counsel has been appointed by the Board of Trustees and is in place for FundVantage. Principal Underwriter 5 Most mutual funds continuously offer new shares to the public at a price based on the current value of fund net assets plus any sales charges. Investors buy and redeem fund shares either directly or indirectly through a third party known as a principal underwriter. The principal underwriter prepares and executes sales and servicing agreements. It also reviews proposed sales and marketing materials for compliance with SEC and Financial Industry Regulatory Authority (FINRA) regulations. The principal underwriter also files the sales literature with FINRA for their review. Finally, the principal underwriter monitors the accruals and disbursements out of the 12b-1 plan and in turn reports activity to the Board of Trustees. Fund Officers The fund s executive officers are experienced individuals who are responsible for the overall fund organization and operations. Management of the ongoing organization and coordination of the efforts of the external service providers for the benefit of the fund complex is a collaborative effort amongst the fund s officers, Board of Trustees, fund council and investment advisor. The fund s executive officers certify to the SEC on Forms N-CSR and N-Q, and manages the affairs of the trust on a day-to-day basis. 5 Services are provided by Foreside
12 // FundVantage Fund Family Summary As you further develop your fund plans, we encourage you to consider FundVantage Trust as an alternative to a stand-alone structure. FundVantage Trust offers the expertise and experience to enable a successful launch and ongoing operational support of your fund in a cost-effective and timely manner.
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