How Directors Can Handle Adviser’s Exit From Fund Biz


An investment adviser’s decision to exit the fund business can present multiple challenges for the fund board. These challenges can be particularly difficult when the interests of the adviser and those of the fund and its shareholders do not completely align. Here is some practical guidance for fund directors who face this situation.

Assignment of Advisory Agreement -

The Investment Company Act of 1940 requires every investment advisory agreement with a registered investment company to terminate automatically in the event of its “assignment.” The purpose of this requirement is to prevent investment advisers from "trafficking" in fund advisory contracts. In other words, the statute limits an investment adviser’s ability to sell investment advisory relationships for its own benefit, which could violate its fiduciary responsibilities to a fund.

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